Principles of Cost AccountingPortfolio
3Problem 1Jim Tallon has obtained the following data relative
to the Gibbs & Vaughan consulting job:.png”>Assume that the Wilkes Barre job will require 50
partner hours and 20 associate hours, while the Scranton job will require 15
partner hours and 55 associate hours.Required:1. a. Using a simplified costing system with one
direct cost category for professional labor and one indirect cost category for
support costs with professional labor hours as the allocation base, compute the
bid price for the Wilkes Barre job and the Scranton job, assuming a 25% markup
on cost. (Round to the nearest whole dollar.)
b. Do you think that your results
seem reasonable? Why?2. Using an activity-based costing system with two
direct cost categories for partner labor and associate labor, and two indirect
cost categories, one for legal support and one for secretarial support with
cost allocation bases of professional labor hours and partner labor hours, respectively,
compute the bid price for the Wilkes Barre job and the Scranton job, assuming a
markup of 25% on cost.3. a. Compute the difference in bid price for each
job between the simplified costing system and the activity-based costing
b. Were the jobs undercosted,
overcosted, or a combination of each? Which job had the greater differential,
depending on which costing system was used, and why?
Eradicate Inc. segment produces and sells a line of insect repellants that is
sold primarily in the summer months. Recently, the chief operating officer has
become interested in possibly manufacturing a repellant, âHalt,â that can
prevent a person from being attacked by use of a âpepperâ repellant. The appeal
of this product is that it would have year-round sales and would help stabilize
the company’s income.The
product, however, must be sold in a specially designed spray can that will be
safe from being discharged accidentally. The product will be sold in cartons
that hold 24 cans of the repellant. The sales price will be $96 per carton. The
plant is now operating at only 65% of its total capacity, so no additional
fixed costs will be incurred. However, a $100,000 fixed overhead charge will be
allocated to the new product from the company’s present total of fixed costs.Using
the current estimates for 100,000 cartons of âHaltâ as a standard volume, the
following costs were developed for each carton, including the cost of the can:.png”> Eradicate Inc., has requested a bid from a
manufacturer of specialty dispensers for a purchase price of an empty can that
could be used for the new product. The specialty company offered a price of $5
for a carton of cans. If the proposal is accepted, Eradicate Inc. estimates
that direct labor and variable overhead costs would be reduced by 10% and
direct materials would be reduced by 20%.Required:1.
Should Eradicate make or buy the special cans? 2.
What would be the maximum purchase price acceptable to Eradicate for the cans?Problem 3Leprechaun
Enterprises Inc., is considering building a manufacturing plant in County Cork.
Predicting sales of 100,000 units, Leprechaun estimates the following expenses:.png”>An
Irish firm that specializes in marketing will be engaged to sell the
manufactured product and will receive a commission of 10% of the sales price.
None of the U.S. home office expense will be allocated to the Irish facility.Required:1.
If the unit sales price is $2, how many units must be sold to break even? 2.
Calculate the margin of safety ratio.
Calculate the contribution margin ratio.
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