0 points

QUESTION 2

1. Cost Systems - 1

At the beginning of the semester, in the first live session, we introduced different cost categorization schemes.

One categorization scheme distinguished between direct vs. indirect costs. A second categorization scheme distinguished between variable and fixed costs.

Suppose Student X, instead of attending live session #1 (due to the grotesque appearance of the lead instructor), decided to visit Investopedia.com.

Upon his/her/their visit to this famed website, the student found the following passage:

"Fixed costs are costs that do not change when output changes. Examples include insurance, rent, normal profit, setup costs and depreciation. Another name forfixed costsis overhead, orindirect costs.Variable costs, also calleddirect costs, depend on output. A change in output causes a change in variable costs."

Suppose that the student comes to you with this information, and asks "is this right?"

Required

Provide a brief statement that (1) clearly establishes whether you agree or disagree with the information provided by Investopediaand (2)provides support for your position.

8 points

QUESTION 3

1. Cost Systems - 2

Curve Company produces three different types of table saws:basic, deluxe, and awesome.

Corresponding production volumes are 1,000 basic, 750 deluxe, and 200 awesome.

Curve managers have collected the following information.

Resource spending (currently called "overhead"):

...Indirect labor wages andbenefits$ 124,000

...Utilities$38,000

...Informationsystem$25,000

Curve managers feel that these resources comprise three pools:production, production setup and product line management.

Based on information collected, the following percentage breakdown was determined:

ProductionSetupProduct Mgmt

Indirect labor wages andbenefits25%60%15%

Utilities50%40%10%

Informationsystem15%10%75%

The managers also feel that the best driver of costs is at the production unit level.

Required

Use the information provided and key principles of activity-based costing to estimate the amount of overhead resources allocated to a singleawesometable saw.

(Note: You can ignore other potential costs not included in the above information.)

10 points

QUESTION 4

1. CVP - 1

GH Artist Supply custom-produces wood products. It is run out of a garage workshop by a married couple.

They currently focus on three products.

• Artist panels used for fine art painting
• Dog-sized furniture (mini-stairs to allow for smaller aging dogs to get on and off the couch, etc.)
• Customized butcher block cutting boards

The current budget for the upcoming accounting period is presented below, by product:

PanelsDog Furn.Cutting Boards

# of units181230

Selling price per unit ($)755060

Variable cost per unit($)252015

Fixed costs (total $)500360900

There is a different customer market for each of these products.

Fixed costs reflect product-specific machinery.

Required

1.Identify which of the two methods to compute the break-even point best suits this scenario.

2.Describe why the method you identified in (1) best suits this scenario.

3.Compute the break-even point in units using this method.