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    2.lesson 3 (Cost Behavior - Solution)

    Uploaded by

    Aamir Dossani
    The document contains 6 problems analyzing cost behavior for various companies. Problem 1 estimates maintenance costs for Patel Company using overhead allocation and the high-low method to determine a cost formula. Problem 2 does the same for Everglades Bus Tours. Problem 3 estimates overhead costs for Sawaya Company and derives a cost formula. Problem 4 analyzes cost per broadcast hour for WMEG. Problem 5 uses linear regression and high-low method to estimate a water cost formula for SRG Company. Problem 6 identifies expenses as variable, fixed, or mixed and separates mixed costs into components.

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    2.lesson 3 (Cost Behavior - Solution)

    Uploaded by

    Aamir Dossani
    446 views5 pages
    The document contains 6 problems analyzing cost behavior for various companies. Problem 1 estimates maintenance costs for Patel Company using overhead allocation and the high-low method to determine a cost formula. Problem 2 does the same for Everglades Bus Tours. Problem 3 estimates overhead costs for Sawaya Company and derives a cost formula. Problem 4 analyzes cost per broadcast hour for WMEG. Problem 5 uses linear regression and high-low method to estimate a water cost formula for SRG Company. Problem 6 identifies expenses as variable, fixed, or mixed and separates mixed costs into components.

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    solutions to some accounting questions

    Original Title

    2.Lesson 3 (Cost Behavior -Solution)

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    The document contains 6 problems analyzing cost behavior for various companies. Problem 1 estimates maintenance costs for Patel Company using overhead allocation and the high-low method to determine a cost formula. Problem 2 does the same for Everglades Bus Tours. Problem 3 estimates overhead costs for Sawaya Company and derives a cost formula. Problem 4 analyzes cost per broadcast hour for WMEG. Problem 5 uses linear regression and high-low method to estimate a water cost formula for SRG Company. Problem 6 identifies expenses as variable, fixed, or mixed and separates mixed costs into components.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    446 views5 pages

    2.lesson 3 (Cost Behavior - Solution)

    Uploaded by

    Aamir Dossani
    The document contains 6 problems analyzing cost behavior for various companies. Problem 1 estimates maintenance costs for Patel Company using overhead allocation and the high-low method to determine a cost formula. Problem 2 does the same for Everglades Bus Tours. Problem 3 estimates overhead costs for Sawaya Company and derives a cost formula. Problem 4 analyzes cost per broadcast hour for WMEG. Problem 5 uses linear regression and high-low method to estimate a water cost formula for SRG Company. Problem 6 identifies expenses as variable, fixed, or mixed and separates mixed costs into components.

    Copyright:

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    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 5

    1

    Lesson 3 - Cost Behavior -Solutions


    Problem No 1: (Patel Company)
    1. Estimate the maintenance cost for June.
    Total OH cost at 80,000 machine hour
    Less: Utilities ($54,00050,000) 80,000
    Less: Supervisory salaries (Fixed)
    Portion of OH for June that represents maintenance cost

    $262,400
    (86,400)
    (62,000)
    $114,000

    2. Use the high-low method to estimate the cost formula for maintenance cost.
    High Point
    Low point
    Change Observed

    Maintenance Cost
    $114,000
    78000
    $36,000

    Machine-Hour
    80,000
    50,000
    30,000

    Variable Rate:
    $36,00030,000MH = $1.20 per machine hour
    Total Fixed Cost:
    Total maintenance cost at the low point
    Less: variable cost element (50,000$1.20)
    Fixed cost element

    $78,000
    60,000
    $18,000

    The Cost formula is Y = $18,000+41.20 X


    Problem No 2: (Everglades Bus tours)
    1. Variable Maint cost per tour mile = ($12,500-$11,000) (20,000-8,000) = $0.125

    $11,000 = FC + (0.1258,000 miles)

    2. Cost Formula

    FC= $10,000

    TC = 10,000 + 0.125 Tour miles travelled

    3. Cost prediction at the 22,000 miles activity level

    2
    Maintenance cost = $10,000 + $0.12522,000 miles = $12,750

    Problem No 3: (Sawaya Company)


    1. Estimate the maintenance cost.
    Total overhead cost at 75,000 direct labor hours
    Less:
    Indirect materials ($5,000,00050,000)75,000
    Rent (Fixed)
    Portion of overhead that represents maintenance

    17,625,000
    (7,500,000)
    (6,000,000)
    4,125,000

    2. Use the high-low method to estimate the cost formula for maintenance cost.
    High Point
    Low point
    Change Observed

    Maintenance Cost
    4,125,000
    3,250,000
    875,000

    Machine-Hour
    75,000
    50,000
    25,000

    Variable Rate:
    875,00025,000 DLH = 35 per direct labor hour
    Total Fixed Cost:
    Total maintenance cost at the low point
    Less: variable cost element (50,000 35)
    Fixed cost element

    3,250,000
    1,750,000
    1,500,000

    The Cost formula is Y = 1,500,000+35 X


    3.
    Maint Cost 1,500,000+3570,000
    Rent (Fixed)
    Indirect material 70,000100
    Total factory overhead costs

    3,950,000
    6,000,000
    7,000,000
    16,950,000

    Problem No 4: (WMEG)
    1. Compute the cost per broadcast hour during July and September for each of these
    cost items.
    Production Crew
    July
    September

    July
    $4,875390= $12.50 per hr
    $5,000390= $12.82 per hr

    September
    $8,000640= $12.50 per hr
    $5,000640= $7.81 per hr

    2. What will be the total amount incurred for each of these costs during December,
    when the stations activity will be 420 broadcast hours?
    Production Crew
    Supervisory employees

    420$12.50= $5,250 per hr


    $5,000

    3. What will be the cost per broadcast hour in December for each of the cost items?
    Production Crew
    Supervisory employees

    $12.50 per hr
    5,000420 hrs= $11.90 per hr

    Problem No 5: (SRG Company)


    A. (1)

    X = machine hours
    Y = Water Costs
    (X) 2 = 2,500

    b = n XY (X) (Y)

    X = 50
    Y = 20.80
    n X2 (X)2

    XY = 106.05
    X2 = 265.50

    4
    b= 10 (106.50) (50) (20.80)
    a= Y n

    10 (165.50) (2,500) = 0.315

    b (X n) = 20.80 10 0.315 (5010) = 0.505


    0.5051000 = 505
    TC = 505 + 0.315 machine hours
    (2)

    H
    L

    $2,700
    1,800

    6,500
    4,000

    VC rate = (2,700 1,800) (6,500 4,000) = $0.36 per hour


    FC = 2,700 0.36 6,500 = $360
    Water Cost = $360 + 0.36 machine hours
    B. At 7,000 machine hours
    Linear programming = 505 + 0.315 7,000 = $2,710
    High Low
    = 360 + 0.36 7,000 = $2,880
    Problem No 6: (Franklin Ltd)
    1. Identify each of the companys expenses (including cost of goods sold) as either
    variable, fixed or mixed.
    Cost of goods sold
    Shipping expense
    Advertising expense
    Salaries and commissions
    Insurance expense
    Depreciation expense

    Mixed

    2. Using the high-low method, separate each mixed expense into variable and fixed
    elements. State the cost formula for each mixed cost.
    a) Mixed cost (shipping expense)
    (56,000 44,000) (4,500 3,000) = $8 per unit
    56,000 = FC + 4,500 $8

    FC = $20,000

    TC = 20,000 + $8 number of units sold


    b) Mixed cost (sales and commission expense)
    (143,000 107,000) (4,500 3,000) = $24 per unit
    143,000 = FC + 4,500 $24

    FC = $35,000

    TC = 35,000 + $24 number of units sold

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