Last month when holiday creations inc sold

oi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 138,000 kilometers during a year, the average operating cost is 14.8 cents per kilometer. If a truck is driven only 92,000 kilometers during a year, the average operating cost increases to 18.6 cents per kilometer.

Required:

1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of the truck operation. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places and Fixed cost answer to nearest whole dollar amount.)

2. Express the variable and fixed costs in the form Y = a + bX. (Do not round your intermediate calculations. Round the Variable cost per kilometer to 3 decimal places.)

3. If a truck were driven 115,000 kilometers during a year, what total cost would you expect to be incurred? (Do not round intermediate calculations.)

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,000 sets per year. Annual cost data at full capacity follow:

Direct labor

$

90,000

Advertising

$

102,000

Factory supervision

$

67,000

Property taxes, factory building

$

15,000

Sales commissions

$

57,000

Insurance, factory

$

8,000

Depreciation, administrative office equipment

$

1,000

Lease cost, factory equipment

$

16,000

Indirect materials, factory

$

19,000

Depreciation, factory building

$

107,000

Administrative office supplies (billing)

$

5,000

Administrative office salaries

$

108,000

Direct materials used (wood, bolts, etc.)

$

428,000

Utilities, factory

$

42,000

Required:

1. Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect.) (If your answer is zero, leave the cell blank.)

2. Compute the average product cost of one patio set. (Round your answer to nearest whole dollar.)

3. Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged?

Increase

Decrease

Remain unchanged

Last month when Holiday Creations, Inc., sold 39,000 units, total sales were $300,000, total variable expenses were $219,000, and fixed expenses were $37,200.