Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows: Direct materials 153,000 Direct labour 110,500 Variable manufacturing overhead 204,000 Fixed manufacturing overhead 255,000 Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labour is a variable cost. The contribution margin per unit was: (a) $25.70 (b) $27.30 (c) $32.50 (d) None of the above. 5 Which of the following is true regarding the contribution margin ratio of a single product company? (a) (b) (c) As fixed expenses decrease, the contribution margin ratio increases. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales. The contribution margin ratio increases as the number of units sold increases. (d) The margin of safety is equal to: (a) Sales - Net operating income (b) Sales - (Variable expenses / Contribution margin) (c) Sales - (Fixed expenses / Contribution margin ratio) (d) Sales - (Variable expenses + Fixed expenses) 2 Answer ALL questions in this section. Each question carries 2 marks. 1 The manufacturing overhead budget at Formica Corporation is based on budgeted direct labour-hours. The direct labour budget indicates that 4.400 direct labour-hours will be required in October. The variable overhead rate is $8.90 per direct labour- hour. The company's budgeted fixed manufacturing overhead is $86,680 per month, which includes depreciation of $16,280. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The pre-determined overhead rate for October should be: $19.70 (b) $24.90 (c) $28.60 (d) None of the above. Bakken Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. Production volume 4,000 units 5,000 units Direct materials $45.50 per unit $45.50 per unit Direct labour $44.90 per unit $44.90 per unit Manufacturing overhead $131.50 per unit $108.50 per unit The best estimate of the total variable manufacturing cost per unit is: (a) $45.50 (b) $90.40 (c) $106.9 (d) None of the above. Reddy Company has the following cost formulas for overhead: Cost Cost Formula Indirect materials $2,000 plus $0.40 per machine hour Maintenance $1,500 plus $0.60 per machine hour Machine setup S0.30 per machine hour Utilities $200 plus $0.10 per machine hour Depreciation $800 Based on the cost formulas, the total overhead cost at 600 machine hours is expected to be: (a) $4,500 (b) S52,60 (c) $5,340 (d) None of the above. 3 Page 2 7 Lakes Corporation has provided the following data from its activity-based costing system: Activity Cost Pools Total Cost Total Activity Designing products $1,909,928 9,896 product design hours Setting up batches $5,440 170 batch set-ups Assembly products $116,100 6,450 assembly hours Data concerning Product ABC appear below: Activity Cost Pools Activity Product design hours 260 Batch set-ups Assembly hours 5 100 The overhead cost that would be assigned to Product ABC using the company's activity-based costing system: (a) $52,140 (b) $58,200 $61,280 (d) None of the above. 8. A partial listing of costs incurred at Peggs during September appears below: S Direct materials 199,000 Utilities, factory 11,000 Administrative salaries 83,000 Indirect labour 29,000 Sales commissions 37,000 Depreciation of production equipment 31,000 Depreciation of administrative equipment 44,000 Direct labour 81,000 Advertising 154,000 The total of the manufacturing overhead costs listed above for September is: (a) $71,000 (b) $115,000 (c) $152,000 (d) None of the above