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282. Graber and Johnson, Attorneys at Law, recently opened a law practice in the Northwest. Their goal is to generate a
monthly net income of $10,000. They have initially set their billing rate at $150 per hour. Their billable hours in the first
month of operations (January) were 150 and in the second month of operations (February), 175 billable hours. The costs
incurred at these levels for January and February are given below.
150 billable hours 175 billable hours
Salaries:
Mr. Graber $10,000.00 $10,000.00
Ms. Johnson 10,000.00 10,000.00
Legal secretary 4,000.00 4,000.00
Depreciation (furniture) 500.00 500.00
Supplies 450.00 525.00
Rent 1,000.00 1,000.00
Utilities 412.00 449.50
Total cost $26,362.00 $26,474.50
Required:
A. Classify each cost as fixed, variable, or mixed using billable hours as the driver.
B. Use the high-low method to separate mixed costs into their fixed and variable components.
C. Compute the net income/loss for January and February.
D. If they expect to average 200 billable hours each month what do they need to set as a billing rate per hour to
achieve their goal of generating $10,000 of monthly net income? Show your calculations.
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283. Below are the overhead costs and labor hours for Smith & Co.
Month Overhead Costs Labor Hours
January $ 9,640 490
February 12,680 680
March 11,080 580
April 11,720 620
May 13,000 700
June 10,120 520
July 8,840 440
August 6,600 300
Required: Using the high-low method:
1.) Calculate the fixed cost of overhead.
2.) Calculate the variable rate per labor hour.
3.) Construct the cost formula for total overhead cost.
4.) The company is estimating that in September the labor hours will be 600. How much should they estimate to have in
total overhead cost for September?
ANSWER:
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284. The controller at Speedy Delivery wants to break-out the cost of deliveries into fixed and variable components so
that they will be better able to predict costs for next year. Below are the delivery cost incurred each month and the number
of deliveries.
Month Delivery Cost Deliveries
January $2,176.00 105
February 2,272.00 110
March 1,926.40 92
April 1,696.00 80
May 1,600.00 75
June 2,752.00 135
July 3,616.00 180
August 1,849.60 88
September 1,676.80 79
October 3,808.00 190
November 3,961.60 198
December 4,000.00 200
Required: Using the high-low method:
1.) Calculate the fixed cost of overhead.
2.) Calculate the variable rate per labor hour.
3.) Construct the cost formula for total overhead cost.
4.) The company is estimating that in January the number of deliveries will be 125. How much should they estimate to
have in total delivery costs for January?
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285. The following six months of data were collected on electricity cost and the number of machine hours in a factory.
Electricity Machine
Month cost hours
June $25,160 4,500
July 26,170 4,810
August 27,250 5,120
September 26,680 5,010
October 27,950 5,430
November 27,500 5,190
Required:
A. Using the high-low method compute the variable rate for the electricity cost.
B. Using the high-low method compute the fixed cost of electricity.
C. Estimate the total electricity cost to be incurred in December if 5,300 machine hours are incurred.
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286. Margolo Company makes cross-country skis. The company controller wants to calculate the fixed and variable costs
associated with janitorial services incurred by the factory. Data for the past six months were collected.
Janitorial Labor
Month cost hours
January $9,200 10,120
February 8,800 9,500
March 9,350 10,500
April 9,620 11,100
May 8,400 8,660
June 9,400 10,650
Required:
A. Using the high-low method compute the variable rate of the janitorial cost.
B. Using the high-low method compute the fixed cost of janitorial services.
C. Compute the estimated janitorial cost to be incurred during the next six months assuming that 58,200 labor hours
will be worked.
287. Blacken Company manufactures motorcycles. The company’s management accountant wants to calculate the fixed
and variable costs associated with utility cost incurred by the factory. Data for the past six months were collected.
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Utility Machine
Month cost hours
March $30,255 2,200
April 32,750 2,525
May 34,712 2,710
June 31,850 2,410
July 30,720 2,290
August 29,980 2,150
Required:
A. Using the high-low method calculate the variable rate per machine hour for the utility cost.
B. Using the high-low method calculate the fixed cost of utilities.
C. Construct a cost formula for total utility cost.
D. Estimate the cost of utilities if 2,425 machine hours are used.
288. Coefficients shown by a regression program are:
Intercept 7,600
X Variable 1 5.10
Required:
A. Using the results of regression calculate the fixed cost of maintenance and the variable rate per machine hour.
B. Using the results of regression, construct the cost formula for the total maintenance cost.
C. Calculate the budgeted cost for maintenance assuming that 610 hours are worked next month.
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289. Andover Company makes weather balloons. The company controller wanted to calculate the fixed and variable costs
associated with the maintenance costs incurred by the factory. Data for the past six months were collected.
Maintenance Machine
Month cost hours
January $10,120 526
February 9,560 389
March 9,712 412
April 10,460 569
May 10,226 541
June 9,686 399
Required:
A. Using the high-low method, calculate the fixed cost of maintenance and the variable rate per machine hour.
B. Using the high-low method, construct the cost formula for the total maintenance cost.
C. Calculate the budgeted cost for maintenance assuming that 485 hours are worked next month.
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290. Hipcuts Company operates a chain of trendy beauty salons. The company’s chief executive officer is interested in
accumulating some information on the overhead costs incurred by the company. You have been asked to analyze the
following six months’ worth of data.
Overhead No. of
Month cost Appointments
April $60,160 867
May 56,500 624
June 58,900 689
July 63,500 974
August 59,325 730
September 62,400 901
A regression analysis produced the following coefficients.
Intercept 42,900
X Variable 1 20.46
Required:
A. Using the results of regression, construct a cost formula for the total overhead cost.
B. The CEO would like to limit total overhead cost in future months to 16% of total revenues. Will that be possible if
total revenues are expected to average $300,000 per month and total appointments per month are expected to average
825? Show all of your calculations.
ANSWER:
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291. Grindgood Company operates a chain of cozy coffee shops. The company’s chief executive officer is interested in
accumulating some information on the overhead costs incurred by the company. You have been asked to analyze the
following six months worth of data.
Overhead No. of
Month Cost Labor Hours
April $60,160 867
May 56,500 624
June 58,900 689
July 63,500 974
August 59,325 730
September 62,400 901
Required:
A. Using the high-low method, construct a cost formula for the total overhead cost.
B. The CEO would like to limit total overhead cost in future months to 20% of total revenues. Will that be possible if
total revenues are expected to average $300,000 per month and total labor hours per month are expected to average 780?
Show all of your calculations.
C. Compute the total cost of overhead assuming 925 labor hours are incurred in a given month.
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292. The cost accountant for Bolagio Company used an Excel spreadsheet program to run ordinary least squares on a set
of cost data for its utility cost. Bolagio’s cost driver for utility cost is machine hours. The following results were produced.
Intercept 2,490
X Variable 4.89
Required:
A. Construct the cost formula for Bolagio’s utility cost using the results from the method of least squares.
B. Using the formula computed in (A), what is the estimated cost of utilities for May assuming that Bolagio will
incur 110,000 machine hours?
293. Machine hours and electricity costs for Wells Industries for last year were as follows:
Machine Electricity
Month Hours Costs
January 2,000 $ 9,200
February 2,320 10,500
March 1,520 6,750
April 2,480 11,500
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May 3,040 14,125
June 2,640 11,000
July 3,280 12,375
August 2,800 11,375
September 1,600 7,750
October 2,960 13,000
November 3,760 15,500
December 3,360 13,875
Required:
A. Using the high-low method, develop an estimate of variable electricity costs per machine hour.
B. Using the high-low method, develop an estimate of fixed electricity costs per month.
C. Using the high-low method, develop a cost function for monthly electricity costs.
D. Estimate electricity costs for a month in which 3,000 machine hours are worked.
294. Tamo Company used an Excel spreadsheet program to run ordinary least squares on a set of cost data for its utility
cost. The cost driver for labor cost is employee hours. The following results were produced.
Intercept 1,145
X Variable 13.82
Required:
A. Construct the cost formula for Tamo’s labor cost using the results from the method of least squares.
B. Using the formula computed in (A), what is the estimated cost of utilities for October assuming that Tamo will
incur 560 employee hours?
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295. Last year, Baker Company produced 30,000 units and sold 28,000 units. Beginning inventory was zero. During the
period, the following costs were incurred:
Indirect labor (variable) $ 60,000
Indirect materials (variable) 30,000
Other variable overhead 90,000
Fixed manufacturing overhead 180,000
Fixed administrative expenses 150,000
Fixed selling expenses 120,000
Variable selling expenses, per unit 40
Direct labor, per unit 80
Direct materials, per unit 20
Required: Compute the dollar amount of ending inventory using:
A. Absorption costing
B. Variable costing
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296. During the most recent year, Boston Corp. had the following data:
Beginning inventory in units –
Units produced 15,400
Units sold ($125 per unit) 8,200
Variable costs per unit:
Direct materials $ 13
Direct labor $ 16
Variable overhead $ 8
Fixed costs:
Fixed overhead per unit produced $ 23
Fixed selling and administrative $ 185,000
Required:
A. How many units are in ending inventory?
B. Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory?
C. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?
D. Prepare an income statement using absorption costing.
E. Prepare an income statement using variable costing.
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297. The variable costing income statement for Jackson Company for last year is as follows:
Sales (5,000 units) $100,000
Variable expenses:
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Cost of goods sold $30,000
Selling (10% of sales) 10,000 40,000
Contribution margin $ 60,000
Fixed expenses:
Manufacturing overhead $24,000
Administrative 14,400 38,400
Operating income $ 21,600
Selected data for last year concerning the operations of the company are as follows:
Beginning inventory -0- units
Units produced 8,000 units
Manufacturing costs:
Direct labor $3.00 per unit
Direct materials 1.60 per unit
Variable overhead 1.40 per unit
Required: Prepare an absorption costing income statement for last year.