Accounting Questions - 22220

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Advanced Cost Management

1.  For each of the following activities, identify an appropriate activity-cost driver.

a.    machine maintenance

b.    machine setup

c.    quality control

d.    material ordering

e.    production scheduling

f.     warehouse expense

g.    engineering design 

2. Lubriderm Corporation has the following budgeted sales for the next six-month period

                                Month                          Unit Sales

                                  June                              90,000

                                  July                              120,000

                                 August                           210,000

                                September                      150,000

                                 October                         180,000

                                November                       120,000

There were 30,000 units of finished goods in inventory at the beginning of June.  Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.

Five pounds of materials are required for each unit produced.  Each pound of material costs $8.  Inventory levels for materials are equal to 30% of the needs for the next month.  Materials inventory on June 1 was 15,000 pounds.

Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.

3.  As part of his job as cost analyst, Max Thompson collected the following information concerning the operations of the Machining Department:

            Observation                 Machine-hours           Total Operating Costs

               January                            4,000                              $45,000

              February                            4,600                               49,500

                March                              3,800                               45,750

                 April                                4,400                               48,000

                 May                                4,500                               49,800

Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.


4. Collier Bicycles has been manufacturing its own wheels for its bikes.  The company is operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost.  The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively.  Normal production is 200,000 wheels per year.

A supplier offers to make the wheels at a price of $4 each.  If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead being charged to the wheels will have to be absorbed by other products.

a.    Prepare an incremental analysis for the decision to make or buy the wheels.

b.    Should Collier Bicycles buy the wheels from the outside supplier?  Justify your answer.



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