A company has a total cost of $40.00 per unit at a volume of 120,000 units. The variable cost per unit is $25.00. What would the price be if the company expected a volume of 110,000 units and used a markup of 50%?

A.

$41.36

B.

$37.50

C.

$60.00

D.

$62.05

Sweet Products produces mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. Sweet Products is currently bidding on a potential order from Red Sugar Candy for 5,000 cases of syrup. The estimated cost of each case is $27.50, as follows: direct material, $10; direct labor, $5; and manufacturing overhead, $12.50. The overhead rate of $2.50 per direct labor dollar is based on estimated annual overhead of $1,500,000 and estimated direct labor of $600,000, composed of $400,000 of variable costs and $1,100,000 of fixed costs. The largest fixed cost relates to depreciation of plant and equipment. Should Sweet Products bid on the Red Sugar Candy business at $20 per case?

Answer

A.

No, because the incremental loss will be $7.50 per case.

B.

No, because there are too many qualitative considerations.

C.

Yes, because the incremental profit will be $2.50 per case.

D.

Yes, because the incremental profit will be $1.67 per case.

Road Masters Trucking Company allocates the rent costs and dispatcher's salaries to their different service departments on the basis of miles driven. Estimated costs and miles driven are summarized below:

Rent	$20,000
Dispatcher salaries	$45,000
Local Delivery	620,000 miles
Long-Haul	1,450,000 miles

If cost allocations are computed to 4 significant digits, how much of the rent and salaries costs will be allocated to the long-haul department?

Rent

Salaries

Answer

A.

$14,065

$31,465

B.

$31,465

$14,065

C.

$13,500

$6,000

D.

$6,000

$13,500

A company believes it can sell 5,000,000 of its proposed new optical mouse at a price of $11.00 each. There will be $8,000,000 in fixed costs associated with the mouse. If the company desires to make a profit $2,000,000 on the mouse, what is the target variable cost per mouse?

Answer

A.

$9.40

B.

$11.00

C.

$10.60

D.

$9.00

Bangor Company makes products C and D. Information for overhead costs and for the two products appears below. The company makes 50,000 units of product C each year and 20,000 units of product D.

Activity

Driver

Total Overhead Cost

Prod C Usage

Prod D usage

Setups	# of setups	$200,000	500 setups	1,500 setups
Ordering parts	# of parts	$300,000	60,000 parts	40,000 parts
Machining	MH	$600,000	12,000 MH	6,000 MH
Inspections	# of Insp	$400,000	10,000 Insp	40,000 Insp
Shipping	# of shipments	$300,000	10,000 Ship	10,000 Ship

Total overhead

$1,800,000

* MH