Accounting

Question 1
Degas Industries manufactures only two products, Water-Color Paint Sets and Oil-Based Paint Sets. To generate adequate profit and cover its expenses throughout the value chain, Degas prices its paint sets at 400% of manufacturing cost. The company is concerned because the Oil-Based model is facing severe pricing competition, whereas the Water-Color model is the low-price leader in the market. The CEO questions whether the cost numbers generated by the accounting system are correct. He has just learned about ABC and wants to reanalyze this past year’s product costs using an ABC system.
Information about the company’s products this past year are as follows:
Water-Color Sets
Total direct material costs: $800,000
Total direct labor cost: $300,000
Production volume: 100,000 Water-Color paint sets

Oil-Based Sets
Total direct material cost: $1,200,000
Total direct labor cost: $600,000
Production volume: 30,000 Oil-Based Paint Sets
Currently, the company applies manufacturing overhead on the basis of direct labor hours. The company incurred $900,000 of manufacturing overhead this year and 20,000 direct labor hours (7,000 direct labor hours making Water-Color sets and 13,000 making Oil-Based sets). The ABC team identified three primary production activities that generate manufacturing overhead costs:
Materials Handling ($100,000); driven by number of material orders handled
Machine Processing ($600,000); driven by machine hours
Packaging ($200,000); driven by packaging hours

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The company’s only two products required the following activity levels during the year:
Material Orders Handled Machine Hours Packaging Hours
Water-Color 350 25,000 3,000
Oil-Based 250 15,000 7,000
Total 600 40,000 10,000

Requirements: (17 points each)
1. Using the company’s current costing system (volume-based costing) find the total unit cost of producing one Water-Color Paint Set

2. Using the company’s current costing system (volume-based costing) find the total unit cost of producing one Oil Based Paint Set
3. Using Activity-Based Costing find the total unit cost of producing one Water-Color Paint Set
4. Using Activity-Based Costing find the total unit cost of producing one Oil Based Paint Set

Question 2
The Purple Plum Basket Ball Team estimates the following costs for luxury box rentals:
Week Boxes Rented Costs
1 11 $18,500
2 16 $28,600
3 10 $20,000
4 12 $25,000
5 15 $29,000
Using the high low method answer the following question for the Purple Plum Basketball Team
1. Give the model that predicts the cost of luxury boxes rented using the high low method – appropriately label the variables. Be sure to state it as a model with well-labeled variables
Y=mx+b Y= total cost X= # of product Solve for m and b B is fixed costs M is variable cost

Variable cost= Y2- Y1/ X2 – X1 Fixed Cost = Y2 – (VC x X2)

2. Using the high low method answer the following question – What would you expect total fixed costs to be with 13 boxes rented?
3. Using the high low method answer the following question- What would you expect total variable costs to be with 13 boxes rented?
4. Using the high low method answer the following question – What would you expect total costs to be with 13 boxes rented?
5. Using the least squared regression method answer the following question for the Purple Plum Basketball Team Give the model that predicts the cost of luxury boxes rented using the high low method – appropriately label the variables. Be sure to state it as a model with well-labeled variables
6. Using the least squared regression method answer the following question-What would you expect total fixed costs to be with 13 boxes rented?
7. Using the least squared regression method answer the following question-What would you expect total variable costs to be with 13 boxes rented?
8. Using the least squared regression method answer the following question-What would you expect total costs to be with 13 boxes rented?
9. A Maryville Sports Business Management graduate is brought in to improve the profitability of the stadium. Assume that the new costs are as follows: variable costs will be $1,000 per luxury box rented and fixed costs will be $15,000. Assume the team wants to make $50,000 per week from rentals. Assume they charge $7,000 to rent each box. How many boxes must they rent per week to earn their desired profit?

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