You have recently been appointed as a senior accountant at an automobile company. You notice that no

one has created method to apply overhead to the products, and they are currently being sold without

this value added to them. Currently all overhead is considered an administrative expense on the

profit/loss statement as they aren't sure which product to apply it to. Understanding that this has an

impact on reporting, and decision making, you have decided to implement a method of traditional based

costing. You're pretty sure that using job costing is the way to go. From what you've been told by your

support staff, the amount to tires used is a good indicator of how much overhead relates to that

product. Of the overhead applied, approximately 30% is variable. For the direct materials, approximately

40% is variable, while only 10% of the direct labour is considered variable. The market is infinite and will

accept as many vehicles as you are willing to produce.

1) How many units, of each product, do you need to produce in order to make a profit of $500.

Provide support. (60)

You have now been approached by a consultant who claims that they can increase your sales of each

product by 20% if you are willing to pay them $300 each year.

2) Is this a good idea, why? Provide support. (25)

3) What is the new breakeven in dollars? Provide support. (15)

Question 1 Estimated Activity Fast Slow Kinda Slow MOH ($) Tires 33 34 13 82 Doors 24 16 20 38 Acutal DM ($) 10 13 15 DL ($) 12 14 16 MOH Total Price ($) 40 50 60 Tires Used 12 33 14 Doors Used 18 22 34 Target Profit Consultant Costs Fast Slow Kinda Slow Current Units Sold Before Your Arrival 10 20 30 Fast Slow Kinda Slow Price per model Less variable expenses: DMFast Slow Kinda Slow Price per model Less variable expenses: DM DL MOH Total Variable Costs Contribution margin per model Fast Slow Kinda Slow FC DM DL MOH Total Overall Cash Required Fast Slow Kinda Slow Breakeven in UnitsQuestion 2 Price Change Price Per Model Less variable expenses: Contribution margin per model Revised Ca sh Requied Breakeven in Units Breakeven in Sales Good idea? Why