Question

Styles The new president of the Wemecke Company was stumped. Why had profits gone down? He had directed the sales department to push the product with the highest contribution margin, and the sales department had come through with flying colors. The percent of flams sold had increased from 25% of units sold to 37.5% of units sold. So what happened? ams Sales Price per Unit Direct Materials per Unit $150 $75 $500 $200 $25 Direct Labor Cost per Hour $25 Direct Labor Hours per Unit 1 hour per unit 5 hours per unit Number of Units Produced 25,000 15,000 The variable overhead for the coming year is estimated to be $3,000,000. Required 1. Calculate the Wermecke Company's estimated direct labor hours to produce flims and flams 2. Calculate the predetermined variable overhead rate that will be used in the coming 3. Using a traditional costing system based upon direct labor hours, compute the unit 4. It has been suggested to the president to consider the use of an ABC costing year using a traditional costing system based upon direct labor hours. product costs for flims and flams as well as contribution margin per unit. system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming AC556 Week 2 Problem Sales Forecasting NOTE: It is expected that this problem will be completed using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab. The Schonlind Company has gathered information regarding past sales: Year 1999 2000 2001 2002 2003 2004 2005 Sales $300,000 225,000 325,000 650,000 540,000 675,000 825,000 Required: 1. Predict the sales for 2006 using the moving average method. 2. You noticed a sudden jump in sales in 2002 After inquiring about this jump, you were told that there was a one-time sale for $200,000 in that year that is not likely to be repeated. What revision, if any, would you make in the sales information used for projection? If you revised you historical sales to be used to project 2006 sales, recalculate your projection using the moving average method. 3. Schonlind Company's historical sales? Why?

Answer 1

1. Estimated Total Direct Labor Hours to produce Flims and Flams =1,00,000 hours( see Note 1 below)

Note 1:Calculation of Estimated Total Direct Labor Hours

Particulars	Flims	Flams
Number of units	25,000	15,000
Labor hours per unit	1 hour	5 hours
Total Direct labor hours	25,000 hours (25,000*1)	75,000 hours (15,000*5)
TOTAL DIRECT LABOR HOURS=25,000+75.000=1,00,000 hours

2. Predetermined variable overhead rate= $ 30/direct labor hour (Note 2)

Note 2: Calculation of Predetermined variable overhead rate

Total Variable overheads= $ 30,00,000

Total Direct Labor Hours=1,00,000 hours

Variable overhead rate per direct labor hour=$ 30,00,000/1,00,000 hours=$ 30/ hour

3. Calculation of Unit Product Cost (Using Traditional Costing System) ( See Note Below)

Note: Calculation of Unit Product Cost (Using Traditional Costing System)

Particulars	Flims	Flams
Direct Materials per unit	$   75	$ 200
Direct Labor cost per unit	$ 25 ($25*1 hour)	$ 125 ($ 25* 5 hours)
Variable Cost per unit	$   30 ($30*1 hour)	$ 150 ($30*5 hours)
Total Cost Per Unit	$ 130	$ 475

Contribution per unit for both Flims and Flams (Using Traditional Costing System){ Note below}

Note :Calculation Of Contribution per unit for both Flims and Flams (Using Traditional Costing System)

Particulars	Flims	Flams
Selling Price per unit	$ 150	$ 500
Less: Direct Materials per unit	$   75	$ 200
Less: Direct Labor cost per unit	$ 25 ($25*1 hour)	$ 125 ($ 25* 5 hours)
Less: Variable Cost per unit	$   30 ($30*1 hour)	$ 150 ($30*5 hours)
Contribution per unit	$ 20	$ 25