Chapter 2 | Cost Sohevio, Rathi Analy. end Cost Estimation 47 @9. During the past century, how have dicect materials, dee labor, and manufsetuiag overhead changed 1 a portion of to ‘manufacturing costs? What is the implication of the change in manulacturing ‘overhead for cost estimation? QV. Distinguish Between the unit batch-, product, and facility-level activities of a manufacturing ‘organization. MINI EXERCISES M211, Classifying Cost Behavior (0%) Classify the toral costs of each of the following as variable, fixed, mixed, or step. Sales volume isthe cost “river, Salary of the department manager “Memory chips ina computer assembly plant Real estate taxes Salaries of quality inspectors when each inspector can evaluate a maximum of 1,000 units per day ‘Wages paid to priution employees forthe time spent working on products Electric power in a factory aw materials used in production ‘Automobiles rented on the basis of a xed charge per day plus an additional charge per mile driven Sales commissions Depreition on fice equipment 11242, Classifying Cost Behavior ow) Casi the foal costs ofeach ofthe following as variable, fixed, mixed, oF stp, ° A Straight-line depreciation on a building ‘Maintenance casts ata hospital Rent on a photocopy machine charged asa xed amount per month piys an addtional charge per copy Cost of goods sold in @ bookstore Salaries paid to temporary instructors in a college asthe number of course sessions varies Luraber used by a house construction company ‘The costs of operating a research department ‘The cost of hiring a dance band for three hours Laser printer paper fora department printor Electric power in a restaurant ] ‘M213. Classifying Cost Behavior (Let) Foreath of the following sunion sete most apropos! behavior ptm (shown in he ‘usar on ete page) eh es penne coven, er pees Cotter repens ol vlune an he ts epson acta ints Each Pate ay be tse ioe han once ‘Variable costs per sit Total fixed costs “Total mixed costs Average fixed cost per unit Tota! current manufacturing costs Average variable costs ‘Tozal costs when empoyees are paid $10 per hour forthe fist 40 hours worked cach week and $15, for each additional hour ‘Total costs when employees are paid $10 per hour and guaranteed a minimum weekly wage of $200. “Teal costs per day when a consuhant i paid $200 per hour with # maximum dally fee of $1,000. “Tol variable costs ‘Toa costs for salaries of social workers where each social worker ean handle @ maximum of 20 cases ‘A water bill where a lat fee of $800 is charged forthe frst 100,000 gallons and additional water costs $0,005 per gallon ‘Total variable costs properly used 10 estimate step costs ‘Total materials costs Rent on exhibit space ata conventionChapter 2 | Cost Sehavier, Acbty Anayls, an Cost Estimation r 0 ® 2 ° ® © ” ® / ° Mas. Some other relationship _— _— (10) a 2) Classifying Cost Behavior (0%) For each of the graphs displayed at the top of page 49, select the most appropriate cost behavior pattern Where the lines represent the cost behavior pater, the vertical axis represents total costs, the horizontal axis represents total volume, and the dots represent ‘etual costs, Each pattem may be used more than once ‘Acellular telephone bill when aft fee is charged forthe irs 200 minutes of use per month and additional use costs $0.45 per minute ‘Teal selling and administrative costs “Total labor costs when employees are paid per unit produced Total overtime premium paid production employees Average total cost per unit Salaries of supervisors when each one can supervise a maximum of 10 employees Total idle time costs when employees ae paid For a minimum 40-hour week ‘Materials costs per unit Total sales commissions Electric power consumption in a restaurant ‘Total costs when high volumes of production require A good linear approximation of actual costs Ainear cos estimation valid oaly within the relevant range se of overtime a obsolete equipment EXERCISES p28, Computing Average Us inCosts (Loz) ‘The total monthly operating costs of Chili To Go are: $310,000 + $0.40% where X = servings of Required 4a. Determine the average cost per serving, at each ofthe following monthly volumes: 100; 1,00 5,000: 6. and 10,000 Determine the monthly volume at which the average cost per serving is $0.60,eas, mw. mB Chapter 2 | Cost Behavior Acty Analyse, andiOoet Estimation 49 (4) (6) (6) (7) @) — ‘Some other _ relationship ® (10) 412) ‘Automatic versus Manual Processing (£02) Photo Station Company operates a printing service for customers with digital cameras. The current service, which requires employees to download photos from customer cameras, has monthly operating costs of $5,000 ‘plus $0.20 per photo printed. Managements evaluating the desirability of acquiring machine that wil allow «uslomers to download and make prints without employee assistance. Ifthe machine is aequised, the monthly fixed costs will increase to $10,000 an the variable costs of printing a photo will decline o $0.04 per photo. Required 4 Determine the total costs of printing 20,000 and $0,000 photes per month 1 With the current employee-assisted process. 2. With the proposed customer self-service process Determine the monthly volume at which the proposed process becomes preferable to the current process Automatic versus Manual Processing (L02) Mid-Town Copy Service processes 1,800,000 photocopies per month at its mid-town service center. Approximately 50 percent of the photocopies require collating. Collating is curently performed by high school and college students who are paid $8 per hout. Each student collates an average of 5,000 copies per hour. Management is contemplating the lease of an automatic collating machine that has a monthly ‘capacity of 5,000,000 photocopies, with lease and operating costs totaling $1,550, plus $005 per 1,000 nits collated. Required 1 Determine the tote costs of collating 500,000 and 1,500,000 per month 1. With student hop. 2. With the collating machine ‘Determine the monthly volume at which the automatic process becomes preferable tothe manual proces. «Should Mid-Town Copy Tease the automatic collating machine a this ime? High-Low Cost Estimation (L02) Assume the local DHL- delivery service hub has the following information available about Reet miles and OH (DHL) operting costs:Chapter 2 | Cost Behavior, Atty Anya, ard Cost Estimation E29, Year Mites Operating Costs 2008: 556,000 $177,000 2007 584,000, 209,000 Required Use the high-low method to develop a costestimaiing equation for focal annual operating costs Scatter Diagrams and High-Low Cost Estimation (L02, =) Assume the Tocal LensC'aers has the following informatio on the number of sales orders received and order processing costs, ‘Month Sales Orders Order-Processing Costs 1 3,000 $40,000 2 1,800 28,000 "3. 44000 5,000 4 2,800 39,000 5 2/300 32,000 vs. 1,000 20,000 7 2,000 30,000 Required 44, Use information fiom the high: and low-volume months to develop a cost-estimating equation for ‘monthly order-processing casts 1. Plot the data on a scater diagram. Using the information from representative high- and low- volume months, develop costestimating equation for monthly production costs ‘6 What factors might have caused the difference inthe equations developed for requirements (a) and (by? Scatter Diagrams and High-Low Cost Estimation (102, 5) From April [through October 31, Santa Cruz County Highway Department hires temporary eraployees to ‘mow and clean the right of way along. county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowirg and cleaning a mile of road, The following information is available regarding current year operations: Miles Mowed Labor Month ‘andCleaned Gost Apel 350 $7,500 May. 300 7.000 une 400 ‘500 uy 280 5,000 August 375 18,000 September 200 +4500 October 100 4300 Required 12. Use the information from the high- and low-volume months 19 develop 4 cost-estimating equation for ‘monthly labor costs. 1b. Plot the data on a scatter diagram. Using the information from representative high- and low-volume sonths, use the high-low method to develop a cost-estimating equation for monthly labor costs, What factors might have caused the difference in the equations developed for requirements () and (0)? 4. Adjust the equation developed in requiremen:(b 1 incorporate the effect ofan anticipated 7 percent