HOMEWORK CHAPTER 8

Question 1
Loring Company had the following data for the month:

Variable costs per unit:

Direct materials $4.00
Direct labor 3.20
Variable overhead 1.00
Variable selling expenses 0.40

Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units.
During the month, 2,000 units were produced. Loring started the month with 300 units in beginning
inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold
during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled
$3,600.

a. What is the unit product cost under absorption costing?

b. What is the unit product cost under variable costing?
c. What is operating income under variable costing?
d. What is operating income under absorption costing?

Question 2
Nauman Company has the following information pertaining to its two divisions for last year:

Division X Division Y
Variable selling and admin. expenses $ 70,000 $ 90,000
Direct fixed expenses 35,000 100,000
Sales 200,000 400,000
Direct fixed selling and admin. expenses 30,000 70,000
Variable expenses 40,000 100,000
Common expenses are $24,000 for the year.

a. What is the segment margin for Division X?

b. What is the segment margin for Division Y?
c. What is the income for Nauman Company?

Question 3
Simon Company sells 900 units of its deluxe product each year. The cost of setting up for one production
run is $150; the cost of carrying one unit in inventory for a year is $3.

a. What is the economic order quantity?

b. What is the annual setup cost of the EOQ policy?
c. What is the annual carrying cost of the EOQ policy?
d. What is the total inventory-related cost of the EOQ policy?