Question 1

(Total: 12 marks)

Michael Scott works as a cost analyst for mid-size paper company. He collected the following information concerning the operations of the Machining Department:

Observation

Machine-hours

Total Operating Costs

January

4,000

$45,000

February

4,600

49,500

March

3,800

45,750

April

4,400

48,000

May

4,500

49,800

Required:

a.Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.

b.If June's estimated machine-hours total 4,200, what are the total estimated costs of the Machining Department?

Question 2

(Total: 10 marks)

You, YU CPA student, was asked by a small company to perform some management advisory services. The following information pertains to 2019 operations.

Sales (5,000 microwave ovens)

$1,350,000

Cost of goods sold

540,000

Store manager's salary per year

75,000

Operating costs per year

225,000

Advertising and promotion per year

25,000

Commissions (4% of sales)

67,500

Required:

a.Determine the total costs using the account analysis method if Miller's expects to sell 6,500 units next year.

Question 3

(Total: 24 marks)

Great Canadian Muffin Company, Inc., prepares frozen gourmet muffins for shipment to upscale grocery stores as well as mailing to web and catalog customers. The company has two workstations, cooking and distribution. The cooking station is limited by the cooking time of the food. Distribution is limited by the speed of the workers. Distribution normally waits on food from cooking. Because the demand has increased in recent months to 4,000 dozen muffins, management is considering adding another oven in the cooking station or else having the cooks start to work earlier. The monthly cost of operating the cooking station one more hour each day is $1,500. The cost of adding another cooking station would add an average of $8 per hour. The current operating hours total eight hours a day, 24 days a month. The contribution margin of the finished products is currently $2 per dozen. Inventory carrying costs average $0.50 per dozen per month. Either the extra hour or the new cooking station would increase production by 50 dozen a day, with a long-run increase of 100 dozen units in finished goods inventory to 500 dozen.

Required:

a.What is the total production per month if the change is made?

b.What is the increase in the expected monthly product contribution for each of the possible changes? Assume long-run production equals sales.

c.What course of action would you recommend?

Question 4

(Total: 30 marks)

2XU manufactures sportswear. Classify each of the following quality costs as prevention, appraisal, internal failure or external failure.

A) Internal failure

B) Prevention

C) Appraisal

D) External failure

Required:

a.Disposal of spoiled work in process

b.Downtime due to quality problems

c.Expediting work to meet delivery schedule

d.Field testing

e.Maintaining a complaint department

f.Product liability

g.Quality training

h.Reinspection

i.Testing and inspecting of direct materials

j.Warranty repairs

Question 5

(Total: 24 marks)

Easy Rider Ltd. makes small motorcycles. The monthly demand for these motorcycles ranges from 80 to 100 motorcycles. The average demand is 92 motorcycles. The plant operates 300 hours a month. Each cycle takes approximately 1.5 hours to complete.

If the company adds a new line of scooters, initial demand will be 20 per month. Each scooter will take 1 hour to make. To offset approaching production capacity, expanding the assembly line is possible. This will decrease manufacturing time for all products by 20 percent. However, this will increase the costs of motorcycles from $400 to $500 and scooters from $200 to $240. The change will also cause increases in prices from $700 to $750 for motorcycles and from $450 to $500 for scooters.

Required:

1.What is the average waiting time for motorcycles if they are the only item manufactured?

(4 marks)

2.What is the average waiting time if both motorcycles and scooters are produced and the assembly line is not enlarged? (4 marks)

3.What is the average waiting time if both motorcycles and scooters are produced and the assembly line is enlarged? (4 marks)

4.What is the expected monthly margin without scooters if the company sells all 92 motorcycles it manufactures? (4 marks)

5.What are the expected monthly contribution margins if scooters are made with the current assembly line and with the new assembly line? Assume average sales and that sales equal production. (4 marks)

What action do you recommend?