Exercise 1 (Chapter 5):

SomethingNew is a small one-person company that provides elaborate and imaginative wedding cakes to order for very large wedding receptions. The owner of the company would like to understand the cost structure of the company and has compiled the following records of activity and costs incurred. The owner believes that the number of weddings catered is the best measure of activity.

Month

Weddings

Costs Incurred

January

February

March

April

May

June

3

2

6

9

12

20

$3,800

$3,600

$4,000

$4,300

$4,500

$5,200

a.Using the high-low method, estimate the variable cost per wedding and the total

fixed cost per month. (Round off the variable cost per wedding to the nearest cent

and the total fixed cost to the nearest dollar.).

b.Using the cost formula you derived. Estimate the total cost at 15 weddings.

Exercise 2 (Chapter 12):

Adamyan Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current

monthly production is 12,750 medals. The company normally charges $120 per medal. Cost data for the current level of production are shown below:

Variable costs:

Direct materials ...................................... $624,750

Direct labor ............................................. $306,000

Selling and administrative ...................... $15,300

Fixed costs:

Manufacturing ........................................ $506,175

Selling and administrative ...................... $123,675

The company has just received a special one-time order for 700 medals at $83 each.

For this particular order, no variable selling and administrative costs would be

incurred. This order would also have no effect on fixed costs.

Required: Should the company accept this special order? Why?