Case 1. Liquid Sky designs, manufactures, and sells wakeboards through water-sports spe- cialty stores and sports superstores. In 20X5, Liquid Sky incurred the following costs that are directly traceable to its Blowout product line: Production Molding (direct materials and direct labor). Production-Graphics (direct materials and direct labor) Advertising for Blowout.. $288,000 430,000 100,000 In addition to these direct costs. Liquid Sky also incurred other costs that cannot be traced directly to individual product lines. These indirect costs are allocated to the different product lines. For 20X5, Liquid Sky reports the following information about its indirect costs: Total Indirect Costs Allocation Base for Indirect Costs Total Quantity of Allocation Base Product design Production- Molding Production- $ 180,000 New designs 3 new designs 1,200,000 Machine hours 6,000 machine hours Graphics 1,800,000 Labor hours 18,000 labor hours Distribution 300,000 Shipments 1,000 shipments During 20X5. the whole Blowout product line required a total of one new product design. 1.000 machine hours. 3.500 labor hours, and 140 shipments. There were no beginning inven tones of any kind. Required 1. Compute an indirect cost allocation rate for each of the four indirect costs. 2. Use the indirect cost allocation rates from requirement I to compute the total costs for the Blowout wakeboard product line, including all direct and indirect costs. Assuming Liquid Sky produced 7.000 Blowout wakeboards, what is the total cost per wake- board? 3. += At the end of 20X5, Liquid Sky's ending inventory consists solely of 600 Blow- out wakeboards. What inventory value would appear on Liquid Sky's December 31, 20X5 balance sheet? (Hint: Round your inventoriable cost per unit to the nearest penny 4. A snow ski manufacturer has asked Liquid Sky to produce snowboards, which the ski manufacturer would sell under its own name. Suppose Liquid Sky decides to produce the snowboards for the snow ski manufacturer on a cost-plus-fixed-fee basis. (That is, the sale price is Liquid Sky's cost to make the snowboards plus a fixed fee of $50,000.) The rest of Liquid Sky's business is at fixed sale prices-for example. $300 for Blowout wakeboards. What cost allocation incentives would this give Liquid Sky's managers? When there are difficult allocation decisions, will Liquid Sky be tempted to allocate a bigger or smaller share of indirect costs to the snowboards? Why? 5. Liquid Sky's top management knows that the sale price of Blowout wakeboards may change over the product's life. But management wishes to identify a target sale price Liquid Sky should receive on average over the life of the product. Which of Liquid Sky's costs are relevant in setting the long-run average sale price for Blowout wakeboards? Give your reason.