La Mia’s Casas builds replicas of residences of famous and infamous people. The company is highly...
La Mia’s Casas builds replicas of residences of famous and
infamous people. The company is highly automated, and the new
accountant-owner has decided to use machine hours as the basis for
predicting maintenance costs. The following data are available from
the company’s most recent eight months of operations:
| Machine Hours | Maintenance Costs |
|---|---|
| 4,000 | $1,470 |
| 7,000 | 1,200 |
| 3,500 | 1,680 |
| 6,000 | 1,100 |
| 3,000 | 1,960 |
| 9,000 | 880 |
| 8,000 | 1,020 |
| 5,500 | 1,200 |
a. Using the high-low method, determine the cost formula for
maintenance costs with machine hours as the basis for
estimation.
Total cost = $Answer + $Answer X
b. Indicate whether each of the following statements is true or
false based on the results of part (a).
| (1) Results indicate that as machine hours increase, maintenance cost decreases. | TrueFalse |
| (2) The components of fixed and variable costs are unclear. | TrueFalse |
| (3) Based on the data provided, the equation in part (a) functions correctly. | TrueFalse |
Tom’s Shoe Repair provides a variety of shoe repair services.
Analysis of monthly costs revealed the following cost formulas when
direct labor hours are used as the basis of cost
determination:
| Supplies | y = $0 + $4.00X |
| Production supervision and direct labor | y = $500 + $7.00X |
| Utilities | y = $350 + $5.40X |
| Rent | y = $450 + $0.00X |
| Advertising | y = $75 + $0.00X |
a. Prepare a flexible budget at 250, 300, 350, and 400
direct labor hours.
| 250 | 300 | 350 | 400 | |
|---|---|---|---|---|
| Variable costs: | ||||
| Supplies @ $4.00 per DLH | ||||
| Direct labor @ $7.00 per DLH | ||||
| Utilities @ $5.40 per DLH | ||||
| Fixed costs: | ||||
| Direct labor | ||||
| Utilities | ||||
| Rent | ||||
| Advertising | ||||
| Total cost |
b. Calculate a total cost per direct labor hour at each
level of activity. Round amounts to two decimal places.
| 250 | 300 | 350 | 400 | |
|---|---|---|---|---|
| Cost per DLH |
c. Tom’s employees usually work 350 direct labor hours
per month. The average shoe repair requires 1.25 labor hours to
complete. Tom wants to earn a 40 percent margin on his cost. What
should be the average charge per customer, rounded to the nearest
dollar to achieve Tom’s profit objective?
$Answer
Homework Answers
La Mia's Casas
| Machine-hours | Maintenance Costs | |
| High level | 9000 | 880 |
| Low level | 3000 | 1960 |
| Change | 6000 | -1080 |
Variable cost per machine hour = $-1080/6000 = $-0.18
Fixed cost (at high level) = $880 - (9000 x $-0.18) = $880 + $1620 = $2500
Fixed cost (at low level) = $1960 - (3000 x $-0.18) = $1960 + $540 = $2500
a. Total cost = $2500 - $0.18x
b.
| (1) Results indicate that as machine hours increase, maintenance cost decreases. | TRUE |
| (2) The components of fixed and variable costs are unclear. | FALSE |
| (3) Based on the data provided, the equation in part (a) functions correctly. | TRUE |
Per HOMEWORKLIB RULES the first question has been answered. Please post the remaining independent question separately. Thank you.
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