Darnell Poston, owner of Poston Manufacturing, Inc., wants to determine the cost behavior of labor and
Information on number of machine hours, orders, and parts for the six-month period follows:
Required:
- 1. Calculate the monthly average account balance for each account. Calculate the average monthly amount for each of the three drivers.
- 2. Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse rent, and electricity. Express the results in the form of an equation for total cost.
- 3. In July, Darnell predicts there will be 420 orders, 250 parts, and 5,900 machine hours. What is the total labor and overhead cost for July?
- 4. What if Darnell buys a new machine in July for $24,000? The machine is expected to last 10 years and will have no salvage value at the end of that time. What part of the cost equation will be affected? How? What is the new expected cost in July?
1.
Calculate the monthly average account balance for each account. Calculate the average monthly amount for each of the three drivers.
Explanation of Solution
Cost estimation: Cost estimation is the process of ascertaining the behavior of particular cost.
Calculate monthly average account balance for each account.
Account | Workings | Amount |
Average workers' salaries | ($43,200 ÷ 6) | $7,200 |
Average temp agency payment | ($6,240 ÷ 6) | $1,040 |
Average warehouse rental | ($1,700 ÷ 6) | $283 |
Average electricity | ($3,410 ÷ 6) | $568 |
Average depreciation | ($13,200 ÷ 6) | $2,200 |
Table (1)
Calculate the average monthly amount for each of the three drivers.
Account | Workings | Amount |
Average machine hours | ($29,600 ÷ 6) | $4,933 |
Average number of orders | ($1,720÷ 6) | $287 |
Average number of parts | ($2,800 ÷ 6) | $467 |
Table (2)
2.
Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse rent, and electricity. Express the results in the form of an equation for total cost.
Explanation of Solution
Calculate monthly fixed cost.
Calculate variable rate for temp agency.
Calculate variable rate for warehouse rental.
Calculate variable rate for electricity.
Monthly cost equation is
3.
Calculate the total labor and overhead cost for July.
Explanation of Solution
Calculate the total labor and overhead cost for July.
4.
State whether, Person D buys a new machine in July for $24,000, if the machine is expected to last 10 years and will have no salvage value at the end of that time. And identify the part of the cost equation will be affected, and identify the new expected cost in July.
Explanation of Solution
Calculate new machine depreciation per month.
Calculate new total cost for July month.
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Chapter 3 Solutions
Cornerstones of Cost Management (Cornerstones Series)
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