Darnell Poston, owner of Poston Manufacturing, Inc., wants to determine the cost behavior of labor and overhead.
Question:
Darnell Poston, owner of Poston Manufacturing, Inc., wants to determine the cost behavior of labor and overhead. Darnell pays his workers a salary; during busy times, everyone works to get the orders out. Temps (temporary workers hired through an agency) may be hired to pack and prepare completed orders for shipment. During slower times, Darnell catches up on bookkeeping and administrative tasks while the salaried workers do preventive maintenance, clean the lines and building, etc. Temps are not hired during slow times. Darnell found that workers' salaries, temp agency payments, rentals, utilities, and plant and equipment depreciation are the largest dollar accounts. He believes that workers' salaries and plant and equipment depreciation are fixed, temp agency payments are associated with the number of orders (since temp workers are used to pack and prepare completed orders for shipment), and electricity is associated with the number of machine hours. When the number of different parts stored by Poston exceeds the space in the materials storeroom, Darnell rents nearby warehouse space. He can rent as much or as little space as he wants on a month-to-month basis. Therefore, he believes warehouse rental payments are variable with the number of parts purchased and stored. The account balances for the past six months as well as the six-month total are as follows:
Information on number of machine hours, orders, and parts for the six-month period follows:
Required:
1. Calculate the monthly average account balance for each account. When required, round your answers to the nearest dollar and use your rounded answers in all subsequent computations.
| Average workers' salaries | $ |
| Average temp agency payment | $ |
| Average warehouse rental | $ |
| Average electricity | $ |
| Average depreciation | $ |
Calculate the average monthly amount for each of the three drivers. When required, round your answers to the nearest whole number.
| Average machine hours | |
| Average number of orders | |
| Average number of parts |
2. Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse rent, and electricity. If required, round your answers to the nearest cent and use the rounded answers in subsequent computations.
| Average fixed monthly cost | $ | |
| Variable rate for temp agency | $ | per order |
| Variable rate for warehouse rental | $ | per part |
| Variable rate for electricity | $ | per machine. hrs. |
Express the results in the form of an equation for total cost.
| Monthly cost | = | $ | + | $ (orders) | + | $ (parts) | + | $ (machine hours) |
3. In July, Darnell predicts there will be 420 orders, 250 parts, and 5,900 machine hours. What is the total labor and overhead cost for July? Round interim computations to 1 decimal place and round final answer to the nearest dollar.
4. What if Darnell buys a new machine in July for $24,000? The machine is expected to last 10 years and will have no salvage value at the end of that time. What part of the cost equation will be affected?
- Select your answer -Fixed cost Mixed cost Variable cost Cost per order Cost per part Cost per machine hour Item 18
How will this part of the cost equation be affected?
- Select your answer -It will be increased it will be decreased It will be unchanged Item 19
What is the new expected cost in July? When required, round your answer to the nearest dollar.
Expert Answer:
1 Average workers salaries 432006 7200 Average temp agency payment 62406 1040 Average warehouse ren... View the full answer
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen
