Part A Asco Company has a relevant range of production between 15,000 and 30,000 units. The following cost data represents average variable costs per unit for 25,000 units of production. Required: a) If 25,000 units are produced, what is the variable cost per unit? b) If 16,000 units are produced, what is the variable cost per unit? c) Comment briefly on your answers to (a) and (b). d) If 18,000 units are produced, what are the total variable costs? Part B GEM Ltd leases a photocopy machine with terms that include a fixed fee each month plus a charge for each photocopy made. GEM made 5,000 copies and paid a total of $600 in January. In April, they paid $400 for 3,000 copies. Required: a) What is the variable cost per copy if GEM uses the high-low method to analyze costs? b) How much would GEM Ltd pay if it made 7,500 copies? (Hint: Need to solve for Fixed cost. Question 2 Henry’s Kitchens makes two types of sandwich makers: Basic and Deluxe. The company expects to manufacture 70,000 units of Basic, which has a per-unit direct material cost of $10 and a per-unit direct labor cost of $60. It also expects to manufacture 30,000 units of Deluxe, which has a per-unit material cost of $15 and a per-unit direct labor cost of $40. It is estimated that Basic will use 140,000 machine hours and Deluxe will require 60,000 machine hours. Historically, the company has used the traditional overhead allocation method and applied overhead at a rate of $21 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is shown: Machine setups $ 90 000 Machine processing 4 000 000 Material requisitions 100 000 Total overhead $ 4 190 000 The cost driver for each cost pool and its expected activity is shown: Basic Deluxe Total Machine setups 100 200 300 Machine hours 140 000 60 000 200 000 Parts requisitions 80 120 200 Re quired: a) What is the per-unit cost for each product under the traditional overhead allocation method? b) What is the per-unit cost for each product under ABC costing? c) Briefly comment on the overhead applied per unit under the two overhead allocation methods. i.e. How much was overhead under or overapplied for each product? Further, would you recommend a change to ABC costing for Henry’s Kitchens? Why or why not ? Relevant data from Picta Company’s operating budgets are presented below. The company’s financial year ends on 30 June. Quarter 1 Quarter 2 Sales $248,470 $251,539 Direct material purchases 120,295 128,832 Direct labor 76,553 74,289 Manufacturing overhead 26,000 24,400 Selling and administration expenses 33,500 33,500 Depreciation included in selling and administration expenses 2,000 2,500 Collection from customers 230,524 220,116 Cash payments for purchases 114,345 118,346 Additional data: Equipment was sold in July for $8,000 and $4,500 in November. Dividends of $5,500 were paid in August. The beginning cash balance was $80,395 and a required minimum cash balance per quarter is $60,000. The company has a 15% open line of credit for $70 000 with their bank.
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