The Alec company has the following estimated costs for the next year:

• Direct materials: $15,000
• Indirect materials: $5,000
• Direct labor: $55,000
• Salary of factory supervisor: $35,000
• Rent on factory equipment: $16,000
• Sales commission: $75,000
• Advertising expenses: $11,000

It is estimated that 7,000 machine hours and 8,000 direct labor hours will be worked during the next year. What will be the predetermined overhead rate if Alec company applies manufacturing overhead cost to jobs on the basis of direct labor hours?

2-Susan Bright is considering opening a car wash, Twinkle, Co. She estimates that the following costs will be incurred during her first year of operations: rent $67,160, depreciation on equipment $14,000, salaries $96,840, car shampoo $3.25 per quart. She estimates that each car wash will require 2 quarts of shampoo. Water will cost $3.40 each wash. She must also pay a franchise fee of $2.40 per car wash, since she will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of washes as follows:

	Cost	Number of washes
May	$135,000	10,750
June	$146,000	13,500
July	$140,000	12,000
August	$154,000	15,500

Susan Bright anticipates that she can provide the car wash at $32 each, and she estimates she will sell 25,000 car washes her first year of business.

1. Given the following cost and activity observations for Twinkles utility costs, using units produced as the activity level. Use the high-low method to calculate Twinkles Variable Costs per Unit and Fixed Costs per month for utilities. SHOW YOUR WORK.

Variable Cost per unit ______________________________

Fixed Cost per unit ______________________________

2. Prepare a CVP income statement (both total and per unit). Make sure to label.

	Total	Per Unit

Determine the break-even point in number of washes and in sales dollars. Round your answers to the nearest whole number. SHOW YOUR WORK.

Break-even in washes ______________________________

Break-even in sales ______________________________

3. Calculate the margin of safety in dollars, and as a ratio.
4. Without regard to your answer in part (c), determine the break-even point in washes and in sales dollars if Susan anticipates to make a profit of $35,000.