Reference no: EM131583999

Problem 1 - Lion Company has identified the following overhead costs and cost drivers for next year:

Overhead Item	Expected Costs	Cost Driver	Maximum Quantity
Setup costs	$1,166,400	Number of setups	4,800
Ordering costs	540,000	Number of orders	40,000
Maintenance	1,856,000	Machine-hours	64,000
Power	180,000	Kilowatt-hours	400,000

The following are two of the jobs completed during the year:

	Job 201	Job 202
Direct materials	$18,000	$20,000
Direct labor	$24,000	15,000
Units completed	750	600
Direct labor-hours	180	220
Number of setups	12	15
Number of orders	16	30
Machine-hours	360	300
Kilowatt-hours	180	240

Required - Determine the unit cost for each job using the four cost drivers.

Problem 2 - Regal produces a single product.  The company's March 2014 income statement is as follows:

Sales (1,200 x $120)	$144,000
Cost of goods sold	- 108,000
Gross profit	$ 36,000
Selling and administrative	10,000
Net income	$ 26,000

There were no beginning or ending inventories of work-in-process or finished goods.  Regal's full manufacturing costs were as follows:

Direct materials (1,200 units x $20)	$ 24,000
Direct labor (1,200 units x $32)	38,400
Variable manufacturing overhead (1,200 units x $18)	21,600
Fixed manufacturing overhead	24,000
Total	$108,000
Average cost per unit	$90

Selling and administrative expenses are all fixed.  Regal just received a special order from a firm in Mexico to purchase 900 units at $110 each. The order will not affect the selling price to regular customers.

Required:

a. Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Regal has excess capacity.

b. Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Regal does not have excess capacity.

Problem 3 - Viking Ski Shop specializes in selling ski boots and maintains sales that are extremely seasonal.  For the year 2014, Viking is trying to decide whether to establish a sales budget based on average sales or on sales estimated by quarter.  The unit sales for 2014 are expected to be 16 percent lower than 2013 sales.  Unit sales by quarter for 2013 are as follows:

(In Units)	Spring Quarter	Summer Quarter	Fall Quarter	Winter Quarter	Year Total
Men's Boots	400	350	600	950	2,300
Women's Boots	250	200	400	650	1,500
Children's Boots	162	100	200	300	762
Total	812	650	1,200	1,900	4,562

Men's ski boots sell for $350, women's sell for $340, and children's sell for $230.

Required: Assuming a 16 percent decrease in sales, prepare a sales budget for each quarter of 2014 using:

a. Average quarterly sales

b. Actual quarterly sales

c. Identify the advantage of using each method