Question

Ferryman Products manufactures coffee tables. Ferryman Products has a policy of adding a 20% markup to full costs and currently has excess capacity. The following information pertains to the company's normal operations per month:

Output units 30,000 tables
Machine-hours 8,000 hours
Direct manufacturing labour-hours 10,000 hours

Direct materials per unit $100
Direct manufacturing labour per hour $12
Variable manufacturing overhead costs $322,500
Fixed manufacturing overhead costs $1,200,000
Product and process design costs $900,000
Marketing and distribution costs $1,125,000


What is the Ferryman Products full product cost for long-run pricing purposes?

Select one:

A. $122.75

B. $262.25

C. $242.25

D. $134.75

E. $222.25

2.

Knowledge Transfer Associates is in the process of evaluating its new client services for the business systems consulting division.
∙ Server Planning, a new service, incurred $250,000 in development costs.
∙ The direct costs of providing the service, which is all labour, averages $50 per hour.
∙ Other costs for this service are estimated at $300,000 per year.
∙ The current program for server planning is expected to last for two years. At that time, expected new operating systems are likely to make the service non viable.
∙ Customer service expenses average $250 per client, with each job lasting an average of 40 hours. The current staff expects to bill 15,000 hours for each of the two years the program is in effect. Billing averages $90 per hour.

What is the estimated life-cycle operating income for both years combined?

Select one:

A. $412,500

B. $(43,750)

C. $(87,500)

D. $162,500

E. $206,250

3.

Frank's Computer Monitors Inc.. currently sells 17" monitors for $270. It has costs of $210. A competitor is bringing a new 17" monitor to market that will sell for $225. Management believes it must lower the price to $225 to compete in the market for 17" monitors. Marketing believes that the new price will cause sales to increase by 10%, even with a new competitor in the market. Frank's sales are currently 10,000 monitors per year.


What is the change in operating income if marketing is correct and only the sales price is changed?

Select one:

A. $(435,000)

B. $(352,500)

C. $18,750

D. $1,421,250

E. $(204,000)

Answer 1

1.

Calculation of full product cost

Direct material	100
Direct labor (10,000 x 12)/30,000	4
Variable manufacturing overhead costs (322,500/30,000)	10.75
Fixed manufacturing overhead costs (1,200,000/30,000)	40
Product and process design costs (900,000/30,000)	30
Marketing and distribution costs (1,125,000/30,000)	37.5
Cost per unit	$222.25

Correct option is (E)

I have answered question 1 as per Chegg policy. You please post your other question separately.