Question 1 ( 8 Marks)

1. Stone Company is considering introducing a new line of pagers, targeting the

preteen population. Stone believes that if the pagers can be priced competitively
at $45, approximately 300,000 units can be sold. The controller has determined
that an investment in new equipment totaling $4,000,000 will be required. Stone
requires a minimum rate of return of 16% on all investments.

Instructions
Compute the target cost per unit of the pager.

Question2 (8 marks)
Webber, Inc. developed the following information for its product:
Per Unit
Sales price
$90
Variable cost
63
Contribution margin
$27
Total fixed costs

$1,080,000

Instructions
Answer the following independent questions and show computations using the
contribution margin technique to support your answers.
1. How many units must be sold to break even?

2. What is the total sales that must be generated for the company to earn a profit of
$60,000?

Question 3 ( 10 Marks)
Fancy Decorating uses a job order costing system to collect the costs of its interior
decorating business. Each client's consultation is treated as a separate job. Overhead is
applied to each job based on the number of decorator hours incurred. Listed below are
data for the current year.
Budgeted overhead
Actual overhead
Budgeted decorator hours
Actual decorator hours

$840,000
$870,000
40,000
41,000

Instructions
(a) Compute the predetermined overhead rate.

(b)

(c)

How much overhead was applied for the year?

Determine whether the overhead was under - or over-applied and by how much

Question 4 ( 15 marks)
.ShipShape Company makes 2 different types of boats, commercial fishing and
sail boats both for recreation and competition. The company consists of two
different departments, design & engineering, and production. The company has
decided to allocate overhead costs in each of the two cost pools. Data on
estimated overhead follows:
Activity

Driver

Estimated
Overhead
Cost

Sailboat
Estimate

Fishing
Estimate

Product Design
Production

# of designs
Labor hours

$180,000 22 designs 18 designs

$945,000 4,000 hours 3,500 hours

If the company produces and sells 22 sailboats, and each sailboat requires 180
labor hours, how much overhead will be assigned to each sailboat produced?

Question 5 (9 marks)
Qwik Service has over 200 auto-maintenance service outlets nationwide. It provides
primarily two lines of service: oil changes and brake repair. Oil change-related services
represent 75% of its sales and provide a contribution margin ratio of 20%. Brake repair
represents 25% of its sales and provides a 60% contribution margin ratio. The company's
fixed costs are $60,000 per service outlet.
Instructions
(a) Calculate the dollar amount of each type of service that each service outlet must
provide in order to break even.

(b) The company has a desired net income of $45,000 per service outlet. What is the
dollar amount of each type of service that must be provided by each service outlet to
meet its target net income per outlet?

Question 6 (10 marks)

Moes Machines has the following costs in a period when production is 2,000
units: Direct materials $8,500; direct labor (variable), $9,000; straight-line
depreciation, $800; rent (same every month), $1,200; and other fixed costs,
$1,000.
.

What are the variable cost per unit and fixed cost per unit? ( 4 Marks)

If production changes to 2,200 units, which costs will stay the same? ( 3 marks)
.
.
If production changes to 1,800 units, what would the total variable costs and total
fixed costs be? ( 3 marks)

BONUS (3 Marks)
Moresan Co. gathered the following information on power costs and factory machine
usage for the last six months:
Month
Power Cost
Factory Machine Hours
January
$24,400
13,900
February
29,200
17,600
March
29,000
16,800
April
22,340
13,200
May
19,900
11,600
June
14,900
6,600
Instructions
Using the high-low method of analyzing costs, answer the following questions and show
computations to support your answers.
(a)

What is the estimated variable portion of power costs per factory machine hour?

(b) What is the estimated fixed power cost each month?

(c) If it is estimated that 10,000 factory machine hours will be run in July, what is the
expected total power cost for July?