Alexander Cordova Jr

MBA 1

Problem 1. The Dorilane Company

1 Cost Behavior Selling or Product Cost

Cost Item
Variable Fixed administrative Cost Direct Indirect

Factory labor, direct $ 118,000.00 $ 118,000.00

Advertising $ 50,000.00 $ 50,000.00
Factory supervision $ 40,000.00 $ 40,000.00
Property taxes, factory building $ 3,500.00 $ 3,500.00
Sales commissions $ 80,000.00 $ 80,000.00
Insurance, factory $ 2,500.00 $ 2,500.00
Depreciation, administrative office equipment $ 4,000.00 $ 4,000.00
Lease cost, factory equipment $ 12,000.00 $ 12,000.00
Indirect materials, factory $ 6,000.00 $ 6,000.00
Depreciation, factory building $ 10,000.00 $ 10,000.00
Administrative office supplies (billing) $ 3,000.00 $ 3,000.00
Administrative office salaries $ 60,000.00 $ 60,000.00
Direct materials used (wood, bolts, etc.) $ 94,000.00 $ 94,000.00
Utilities, factory $ 20,000.00 $ 20,000.00
Total $ 321,000.00 $ 182,000.00 $ 197,000.00 $ 212,000.00 $ 94,000.00

2 Average product cost of one patio set

Product Cost Direct $ 212,000.00
Indirect $ 94,000.00
Total Product cost $ 306,000.00
Divided by: Units Produced 2,000.00 units
Average product cost/patio set $ 153.00

3 The variable cost per patio set will remain unchanged however, the fixed cost per patio set will increase as fixed cost will not
change whether there is an increase or decrease in production. The average product cost will increase because fixed cost per
patio set increases.

4a Yes. There will be disagreement in price between two men. The price in the president's mind is $153.00 average product cost
per patio set but in the brother-in-law's mind, the price is $106.00 per patio set or Direct product cost divided by total units
($212,000.00/2,000 units).

4b The cost term is opportunity cost. Since the company is operating at full capacity, the president must give up the full regular
price of a patio set to sell a patio set to brother-in-law, in other words, the amount that must be given up (benefit forgone) to sell a set
to the brother-in-law.
Problem 2. Cost of Goods Manufactured and Cost of Goods sold

1 Schedule of goods manufactured and cost of goods sold

Schedule of goods manufactured

Direct materials:
Beginning raw materials $ 40,000.00
Add: Purchases of raw materials $ 290,000.00
Raw materials availabl for use $ 330,000.00
Deduct: Ending raw materials inventory $ (10,000.00)
Raw material used in production $ 320,000.00
Direct Labor $ 93,000.00
Manufacturing Overhead $ 270,000.00
$ 683,000.00

Cost of goods manufactured

Beginning work in process inventory $ 42,000.00
Add: Total Manufacturing cost $ 683,000.00
Total work in process for the period $ 725,000.00
Deduct: Ending Work in process $ 35,000.00
Cost of goods manufactured $ 690,000.00

Cost of goods sold

Beginning finished goods inventory $ 50,000.00
Add: Cost of goods manufactured $ 690,000.00
Total Goods Available for Sale $ 740,000.00
Deduct: Ending finished goods inventory $ 80,000.00
Cost of goods sold $ 660,000.00

2 Average cost per unit for direct materials

Direct materials $ 320,000.00
Divided by: 40,000 units produced $ 40,000.00
Average cost per unit for direct materials $ 8.00

Average cost per unit for manufacturing overhead

Manufacturing overhead $ 270,000.00
Divided by: 40,000 units produced $ 40,000.00
Average cost per unit for manufacturing overhead $ 6.75

3 At 40,000 units produced

Direct materials $ 320,000.00
Manufacturing overhead $ 270,000.00
Total Manufacturing cost $ 590,000.00

At 50,000 units produced

Direct materials
Average cost per unit for direct materials $ 8.00
Total direct materials (50,000 units X $8.00) $ 400,000.00

Manufacturing overhead
Average cost per unit for manufacturing overhead $ 5.40
Total Manufacturing cost (fixed cost) $ 270,000.00
4 Direct materials are variable cost which means that cost incurred depends on production.
Increase in production would also increase cost for direct materials. Decrease in
production would also decrease cost for direct materials. An increase of 10,000 unit
produced (50,000-40,000 units), direct materials cost increase from $320,000 to $400,000.
On the other hand, manufacturing overhead are fixed cost which means that it will
have no effect if there is an increase or decrease in unit production. Manufacturing cost
remains at $270,000 even there is a 10,000 increase in units produced.
Problem 3. Contribution Format Income Statement

1 The Alpine House, Inc.

Contribution Format Income Statement
For the Quarter Ended March 31

Sales ($750 X 200 pair of skis) $ 150,000.00

Variable expenses:
Cost of goods sold ($450 X 200 pair of skis) $ 90,000.00
Selling expenses ($50 X 200 pair of skis) $ 10,000.00
Administrative expenses ($10,000 X 20%) $ 2,000.00 $ 102,000.00
Contribution Margin $ 48,000.00
Fixed expenses
Selling expenses ($30,000 - $10,000) $ 20,000.00
Administrative expenses ($10,000 X 80%) $ 8,000.00 $ 28,000.00
Net Operating Income $ 20,000.00

2 Selling Price per pair $ 750.00

Variable expenses
Cost per pair $ 450.00
Selling expenses $ 50.00
Administrative expense $ 10.00 $ 510.00
Contribution margin per pair $ 240.00

Contribution margin totaled $48,000 divided by 200 pairs of skis sold equals to
$240.00 ($48,000 / 200 pairs of skis)

For 200 pairs of skis sold, the contribution of each pair of skis toward covering
fixed costs and toward earning of profits was $240.
Problem 4. High Low Method

1 High cost - Low cost

Variable cost =
High units - Low units

13,500 - 7,500
Variable cost =
12,000 - 4,000

$6,000.00
Variable cost =
8,000 guest days

Variable cost = $0.75 per guest days

Fixed cost = Total cost - variable cost per unit X no. of guest days
Fixed cost = $13500 - ($0.75)(12,000)
Fixed cost = $4,500.00

Y = $4,500 + $0.75X

2 At occupancy level of 11,000 guest-days

Total cost = Fixed cost + variable cost per unit X no. of units
Total cost = $4,500 + ($0.75)(11,000 guest days)
Total cost = $12,750.00
Problem 5. Least Squares Regression Method

Total Etching
Week Units
cost
x y xy x²
1 4 SFr 18 72 16
2 3 17 51 9
3 8 25 200 64
4 6 20 120 36
5 7 24 168 49
6 2 16 32 4
30 SFr 120 643 178

n∑xy - ∑x∑y ∑y - a∑x

b= a=
n∑x² - (∑x)² n
6(643) - (30)(120) 120 - (1.54)(30)
b= a=
6(178) - (30²) 6
258 73.9285714286
b= a=
168 6
b= 1.54 a = 12.3214285714

1 Variable cost = SFr$1.54

Fixed cost = SFr$12.32

2 Y = a + bX
Y = SFr$12.34 + SFr$1.54X

3 Y = $12.34 + ($1.54)(5)
Y = $20.00 (expected total etching cost)