Caroll Manufacturing company manufactures a single product. During the past three weeks, the company’s cost accountant observed that while input prices were constant, output costs varied considerably. The following production costs were accumulated for the three-week period.

Week	Output Units	Direct Materials	Direct Labor	Indirect Labor	Indirect Materials	Electricity	Factory Insurance	Other Overhead
1	400	$300	$500	$180	$300	$115	$125	$310
2	500	375	625	200	300	125	125	360
3	600	450	750	220	300	135	125	410

The cost accountant was also able to determine that the selling price for a typical order of the product is $7.00 per unit and the sales force earns commission of 10% per item sold. The accountant also found that other administrative and selling expenses are fixed at $781 per week.

Caroll does not carry inventory and, therefore, the number of units produced is equal to the number of units sold. The cost accountant wanted to develop an analysis to support managerial decision making, including break-even volume. To begin the analysis, the following weekly income information was compiled:

Notice that cost of goods sold (COGS) per unit changes depending on output volume.
At 400 units sold, COGS per unit is $4.58.
At 500 units sold, COGS per unit is $4.22.
At 600 units sold, COGS per unit is $3.98.

Although the accountant found it unusual that COGS per unit would decline as production volume increased, the analysis was used to form the basis of decisions for Caroll Manufacturing. The accountant completed a cost analysis using the average production volume for three weeks and decided that the cost of production is $6.48 per unit. This per unit cost was also assumed to be the break-even cost and guidelines were provided to the sales force based on this premise.

Instructions:

Complete the highlighted items in the Excel Template, following the directions provided in the worksheet. Use Excel formulas to computer your answers. Credit cannot be awarded if the formulas are not included.

1.   Use the amounts you computed in the Excel Template to answer the following questions:
a)   What is the variable manufacturing cost per unit for this product?
b)   What is the total variable cost per unit for this product?
c)   What is the total fixed manufacturing cost for this product?
d)   What is the total fixed cost for this product?
e)   What is the total manufacturing cost when 500 units are produced?
f)   What is the total cost when 500 units are produced?
g)   What is the manufacturing cost per unit when 500 units are produced?
h)   What is the total cost per unit when 500 units are produced?

Answer each of the following questions (show your computations and formulas directly under each question):
2.   How many units does Carol need to sell to break even?
3.   Would the per-unit profit differ if a salesperson sold 450 units or 700 units at the $7.00 unit selling price?
4.   What would be the per-unit profit if 80 units were sold by the office manager (no sales commission is paid on this order)?
5.   Suppose a loyal customer requested to a special order to buy 100 units at $5.50 per unit. This is a one-time only order, the manufacturing company has the capacity to fill this order, and by filling the order no other regular order will go unfilled.
a)   Would you fill this order if you were the manager? Why?
b)   Is there an opportunity cost associated with this order? Explain.
c)   What would be the per-unit profit or loss for filling this order?
6.   What did you learn about cost behavior from completing this case?

Transcribed Image Text:

Units of Direct Indirect Material Direct Materials Labor Labor $ Factory Electricity Insurance Overhead 125 $ 125 Other Week Output Caroll Manufacturing 1 400 300 $ 500 $ 180 $ 300 $ 115 $ 310 Total Variable Fixed 2 500 375 625 200 300 125 360 Unit Cost of 3 600 450 750 220 300 135 125 410 500 Units Manufacturing Cost Direct materials Direct labor Cost Cost Total Per Unit Enter F, V, or M Instructions: The purpose of this exercise is to help you to understand how costs behave relative to activity volume and how to differentiate between total and per-unit fixed, variable, and mixed costs. Indirect labor Indirect material Electricity Factory Insurance 1) Determine whether each of the manufacturing costs listed above are fixed, variable, or mixed and enter F, V, or M into the appropriate boxes above Hint: if the total cost of an item is the same for all levels of output, the cost is fixed; if the unit cost of an item is the same for all levels of output, the cost is variable. otherwise, the cost is mixed. Other overhead Total Manufacturing Costs Administrative and Selling Admin/Selling Expenses Total Costs 2) Once you determine the behavior of each manufacturing cost item, complete the Manufacturing Costs" table to the right, following the instructions below: For items categorized as 'V": Input to column L the computation for each variable cost item. For items categorized as 'F': enter in column M the total fixed cost. For items categorized as 'M': Follow instructions in #3, below. NOTE: Some of the highlighted cells in columns L and M will remain blank. No need to enter zero. 3) Mixed costs will have to be separated into their fixed and variable components using the High-Low Method. Compute each component, showing all work in the High-Low Worksheet tab Once you have computed each component, use Excel cell references to feed the information to the appropriate cells in the schedule to the right. Once columns L and M have been completed, use the information in these two columns to compute total manufacturing cost (column 0), assuming 500 units are produced. DO NOT feed the totals from the original given data. I need to know that you know how to compute total costs even when the total costs are not given in the problem. 5) Finally, compute the unit costs in column P and the Administrative and Selling data at the bottom of the table. Units of Direct Indirect Material Direct Materials Labor Labor $ Factory Electricity Insurance Overhead 125 $ 125 Other Week Output Caroll Manufacturing 1 400 300 $ 500 $ 180 $ 300 $ 115 $ 310 Total Variable Fixed 2 500 375 625 200 300 125 360 Unit Cost of 3 600 450 750 220 300 135 125 410 500 Units Manufacturing Cost Direct materials Direct labor Cost Cost Total Per Unit Enter F, V, or M Instructions: The purpose of this exercise is to help you to understand how costs behave relative to activity volume and how to differentiate between total and per-unit fixed, variable, and mixed costs. Indirect labor Indirect material Electricity Factory Insurance 1) Determine whether each of the manufacturing costs listed above are fixed, variable, or mixed and enter F, V, or M into the appropriate boxes above Hint: if the total cost of an item is the same for all levels of output, the cost is fixed; if the unit cost of an item is the same for all levels of output, the cost is variable. otherwise, the cost is mixed. Other overhead Total Manufacturing Costs Administrative and Selling Admin/Selling Expenses Total Costs 2) Once you determine the behavior of each manufacturing cost item, complete the Manufacturing Costs" table to the right, following the instructions below: For items categorized as 'V": Input to column L the computation for each variable cost item. For items categorized as 'F': enter in column M the total fixed cost. For items categorized as 'M': Follow instructions in #3, below. NOTE: Some of the highlighted cells in columns L and M will remain blank. No need to enter zero. 3) Mixed costs will have to be separated into their fixed and variable components using the High-Low Method. Compute each component, showing all work in the High-Low Worksheet tab Once you have computed each component, use Excel cell references to feed the information to the appropriate cells in the schedule to the right. Once columns L and M have been completed, use the information in these two columns to compute total manufacturing cost (column 0), assuming 500 units are produced. DO NOT feed the totals from the original given data. I need to know that you know how to compute total costs even when the total costs are not given in the problem. 5) Finally, compute the unit costs in column P and the Administrative and Selling data at the bottom of the table.

Answer rating: 100% (QA)

Stepbystep explanation Unts of Indirect Indirect Electriciy Factory Materials 24 Week Direct Direct ... View the full answer