Inventories: Materials, March 1$23,000 Materials, March 3140,000 Work in process, March 1130,000 Work in process, March 3145,000 Finished goods, March 1480,000 Finished goods, March 31375,000Costs: Direct labor$117,000 Plant and equipment depreciation50,000 Materials handling85,000 Inspections60,000 Scheduling30,000 Power30,000 Plant supervision12,000 Manufacturing engineering21,000 Sales commissions120,000 Salary, sales supervisor10,000 Supplies17,000 Warranty work40,000 Rework30,000

Overhead Direct Labor Cost $360,000 $110,000 300,000 100,000 350,000 90,000 400,000 100,000 320,000 90,000 380,000 100,000 300,000 90,000 280,000 90,000 340,000 95,000 410,000 115,000 375,000 100,000 360,000 85,000 340,000 85,000 330,000 90,000 300,000 80,000

Materials-Handling Cost		Number of Moves
$80,000			1,500
60,000			1,000
70,000			1,250
72,000			1,300
65,000			1,100
85,000			1,700
67,000			1,200
73,500			1,350
83,000			1,400
84,000			1,700

Activity	Expected Cost				Driver		Activity Capacity
Other activities		$2,000,000			Direct labor dollars			$1,250,000
Moving materials		900,000			Number of moves			18,000
Inspecting		720,000			Inspection hours			24,000
Reworking		380,000			Rework hours			3,800
Total overhead cost		$4,000,000

Units completed		100,000			40,000
Direct labor dollars		$875,000			$375,000
Number of moves		7,200			10,800
Inspection hours		6,000			18,000
Rework hours		1,900			1,900

4. Prepare an income statement for the Cable Service Division for March.

Cable Service Division
Income Statement
For the Month of March
	$
	$
	$

5a. Prepare the cost of goods manufactured statement for the Phone Division for March.

Phone Division
Statement of Cost of Goods Manufactured
For the Month of March
Direct materials:
	$
Materials available	$
Direct materials used		$
Direct labor
Overhead:
	$
Total manufacturing costs added:		$
Cost of goods manufactured		$

5b. Prepare an income statement for the Phone Division for March.

Phone Division
Income Statement
For the Month of March
		$
Cost of goods sold:
	$
Goods available for sale	$
		$
		$

7. Using the method of least squares, calculate two cost formulas: one for overhead using direct labor cost as the driver, and one for materials handling cost using number of moves as the driver. Round the intercept to the nearest dollar and round the slope to the nearest cent.

Formula one, overhead and direct labor cost: Y = $ + $ X

Formula two, materials handling cost and number of moves: Y = $ + $ X

8. How would you describe the cost behavior of the inspection activity? Assume that the quality control manager implements a program that reduces the number of defective units by 50 percent. Because of the improved quality, the demand for inspection hours will also drop by 50 percent. What is the potential monthly reduction in inspection costs? How did knowledge of inspections cost behavior help?

Inspection activity follows a step-cost function, with each step being defined by hours per year. Each step costs $. Current total activity capacity is hours. Current demand for the activity is hours. If the demand drops by 50 percent, then the new demand would be hours. Unused capacity at this point will be hours. Thus, $ can be saved per month.

9. Calulate the overhead cost per unit for each phone model using direct labor cost to assign all overhead costs to products.

	Overhead Cost per Unit
Regular	$
Deluxe	$

10. Calculate the overhead cost per unit using the four activities and drivers identified by Kim and Jacob. If you were Kim, would you be inclined to implement an ABC system based on the evidence from this pilot test? If required, round the answers to two decimal place.

	Activity Rates
Other:			per direct labor dollar
Moving:		$	per move
Inspecting:		$	per inspection hour
Reworking:		$	per rework hour

	Unit Cost
Regular	$
Deluxe	$