1. Determination of per Unit Total Costs.

The estimated unit costs for Hoteling Industries, when operating

at a production and sales level of 10,000 units, are as follows:
Cost Item stimated Unit Cost
Direct materials........................................ !1"
Direct la#or............................................... 10
$aria#le factor% overhead....................... &
'i(ed factor% overhead............................ "
$aria#le mar)eting.................................. *
'i(ed mar)eting....................................... +
Required:
,1- Identif% the estimated conversion cost per unit.
,.- Identif% the estimated prime cost per unit.
,+- Determine the estimated total varia#le cost per unit.
,*- Compute the total cost that would #e incurred during a month with a production level of 10,000 units
and a sales level of 1.,000 units.
.. Components of /anufacturing Cost. 01TI 221 Inc. produces video cameras. The direct la#or cost of
one camera is !.00, and the total manufacturing cost is !3"0. The overhead cost of one camera is two4
thirds as large as its conversion cost.
Required:
,1- Compute the conversion cost per unit.
,.- Determine the factor% overhead cost per unit.
,+- Determine the direct materials cost per unit.
+.A company allocates its variable factory overhead based on direct labor hours. During the past
three months, the actual direct labor hours and the total factory overhead allocated were as
follows:
October November December
Direct labor hours............................. 2,5 !, 5,
"otal factory overhead allocated......................... #$, #%5, #&,
'ased upon this information, the estimated variable cost per direct labor hour was (high low
method):
A. #.&25
'. #&2.5
*. #.$
D. #$
+. none of the above
*.,or a simple regression-analysis model that is used to allocate factory overhead, an internal
auditor finds that the intersection of the line of best fit for the overhead allocation on the y-
a.is is #5,. "he slope of the trend line is .2. "he independent variable, factory wages,
amounts to #/, for the month. 0hat is the estimated amount of factory overhead to be
allocated for the month1
A. #/&,
'. #/5,
*. # 5,
D. #&$,
+. #2!,
".2ariable costs, fi.ed costs, relevant range +3O4 55N *andies manufactures 6aw-brea7er
candies in a fully automated process. "he machine that produces candies was purchased
recently and can ma7e 8, per month. "he machine costs #9, and is depreciated using
straight line depreciation over ten years assuming :ero residual value. ;ent for the factory
space and warehouse, and other fi.ed manufacturing overhead costs total #&, per month.
+3O4 55N currently ma7es and sells !, 6aw-brea7ers per month. +3O4 55N buys 6ust
enough materials each month to ma7e the 6aw-brea7ers it needs to sell. 3aterials cost &
cents per 6awbrea7er.
Ne.t year +3O4 55N e.pects demand to increase by &<. At this volume of materials
purchased, it will get a &< discount on price. ;ent and other fi.ed manufacturing overhead
costs will remain the same.
Required:
&. 0hat is +3O4 55N=s current annual relevant range of output1
2. 0hat is the annual fi.ed manufacturing cost within the relevant range1 0hat is the variable
manufacturing cost1
!. 0hat will +3O4 55N=s relevant range of output be ne.t year1 4ow if at all, will fi.ed and
variable manufacturing costs change ne.t year1 Assume the costs and depreciation of second
machine are li7e the first machine. "his will add #9 of depreciation per year.