Vieux Enterprise's total overhead costs at various levels of activity follow:



Month Machine$-$

Hours Total

Overhead

Costs

April $70,000$  $ $198,000$ 

May $100,000270,000$ 

June $80,000222,000$ 

July $90,000246,000$ 

Assume that the total overhead costs consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the $70,000$ machine$-$hour level of activity is as follows:





Utilities $($V$)$ $ $56,000$ 

Supervisory salaries $($F$)25,000$ 

Maintenance $($M$)117,000$ 

Total overhead costs $ $198,000$ 



V $=$ variable; F $=$ fixed; M $=$ mixed.



Vieux Enterprise's management wants to break the maintenance cost down into its basic variable and fixed cost elements.



$1.$ As shown, overhead costs in May amounted to $$270,000.$ Determine how much of this consisted of maintenance cost. $($Hint: To do this, it may be helpful to first determine how much of the $$270,000$ consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs!$)$

$2.$ By means of the high$–$low method, estimate a cost formula for maintenance. $($Round the "Variable cost" to $2$ decimal places.$)$

$3.$ Express the company$’$s total overhead costs in the linear equation form Y $=$ a $+$ bX$.($Round the "Variable cost" to $2$ decimal places.$)$

$4.$ What total overhead costs would you expect to be incurred at an operating activity level of $75,000$ machine$-$hours? At an operating activity level of $105,000$ machine$-$hours? $($Do not round intermediate calculations.$)$



Question $2$

As part of the continued advancement of technology, a drone camera market has emerged in recent years. The drone camera market has been growing as more photography enthusiasts have begun adopted this high$-$tech approach to capturing still images and video using remotely controlled devices. Eager to capture a share of this growing market, CamDrone entered the market in early $2018.$ CamDrone manufactures camera drones, selling primarily to retailers.

CamDrone is pleased with its financial performance over its first few years of operations, optimistic to achieve continued financial success. For planning and control purposes the company utilizes a monthly master budget, which is usually developed at least three months in advance of the budget year. The company has a fiscal year ending December $31.$

It is now Sept $15,2019.$ You have been asked to prepare the Master Budget for the year ending December $31,2020.$

Based on your discussions with the various departments throughout the company, you have collected the following relevant information for preparing the budget:

Sales

$1.$ The marketing department is forecasting the following annual sales:

$•$ For the year ended December $31,2019$: $9,000$ units at $$1,000$ each$*$

$•$ For the year ended December $31,2020$: $10,000$ units at $$1,000$ each

$•$ For the year ended December $31,2021$: $15,000$ units at $$1,000$ each

$*$Expected sales for the year ended December $31,2019$ were based on actual sales to date and budgeted sales for the duration of the year.



$2.$ Peak months for sales generally correspond with summer weather and gift$-$giving holidays. History shows that January is the slowest month, with only $1\%$ of annual sales, followed closely behind by Feb$-$April with $2\%$ of annual sales for each month. Sales spike during summer months with May, June, July, and August contributing $12\%,15\%,12\%,$ and $10\%$ of annual sales respectively. With the back$-$to$-$school focus in September, there is a significant dip in camera drone sales to $3\%$ of annual sales. As Christmas shopping picks up momentum, winter sales increase to $8\%$ in October, $13\%$ in November, and then peak at $20\%$ in December. This pattern of sales is not expected to change in the next two years.

Manufacturing Costs and Inventory

$3.$ Each camera drones spends a total of $3\mathrm{.}5$ hours in production.

$4.$ Due to the highly technical nature of CamDrone$’$s manufacturing process, CamDrone$’$s direct labour rate has averaged $$30\mathrm{.}00$ per hour for $2019.$ This rate already includes the employer$’$s portion of employee benefits. A new collective agreement is being negotiated, with a $3\%$ pay increase anticipated effective January $1,2020.$

$5.$ Each CamDrone requires $1\mathrm{.}25$kg of direct materials. During $2019,$ the average cost of direct materials was $$57/$kg$.$ The supplier of the direct materials tends to be somewhat erratic, so CamDrone finds it necessary to maintain a direct materials inventory balance equal to $40\%$ of the following month$’$s production needs as a precaution against stock$-$outs.

$6.$ Due to the similarity of the equipment in each of the production stages and the company$’$s concentration on a single product, manufacturing overhead is allocated based on volume $($i$.$e$.$ the units produced$).$ The variable manufacturing overhead rate for $2019$ is $$160/$unit$,$ consisting of:

image.png



$7.$ The fixed manufacturing overhead costs for $2019$ are as follows:

image.png

Amortization is calculated using the stra