Reference no: EM13333237

Question

Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.

	Sales volume (units)
	4,000	5,000
Cost of sales	$338,000	$422,500
Selling and administrative costs	$89,600	$106,000

The best estimate of the total monthly fixed cost is

Question

Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

Activity Cost Pools	Activity Rate
Size-related	$0.94 per guest
Complexity-related	$31.62 per tier
Order-related	$55.70 per order

• The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake.
• The measure of complexity is the number of tiers in the cake.
• The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)
• The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The activity rates don't include the costs of purchased decorations, such as miniature statues and wedding bells, which are accounted for separately.

Data concerning two recent orders are listed here:

	Pyburn Wedding	Smith Wedding
Number of reception guests	72	189
Number of tiers on the cake	4	5
Cost of purchased decorations for cake	$29.92	$68.75

Suppose the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?