1.) CVP / Breakeven: Santa has decided to sell autographed pictures of hisself this summer so he can have a little spare cash to spend on Mrs. Claus and maybe some of the good other little elfies. It is going to cost him $48,000 to buy framing equipment, plus he has to pay a one time “licensing” fee of $10,000 to Frosty Da Snowman for protection. Each frame will cost $2 for the glass, $6 for the framing material, $1 for the backing, and $3 for the other materials. On the off-season Santa pays the elfs $25 per hour. They make 5 frames an hour. Santa figures he’ll sell the autographed pictures for a whopping $37 each.
Mrs. Claus thinks he has been eating too many cookies and should forget the whole deal. But good ol’ Santa says “ Hey honeycakes, don’t worry about it all I have to do is sell _________of these pictures and we make back all the investment. Then he says in fact, if we sell _________ pictures we will have made $24,000.
Required: What are the numbers for the “blanks” above? (Breakeven number of frames to sell and the number to sell to make $24,000.)
2.) High / Low Cost Estimating: Bing-Bang-Boozle Inc. makes plastic beer cups for tailgating, nice fan decals and all that. They had the following overhead costs:
|
Machine Hours |
Overhead Cost |
|
|
January |
100 |
5400 |
|
February |
160 |
7200 |
|
March |
250 |
9900 |
|
April |
110 |
5700 |
|
May |
180 |
7800 |
|
June |
150 |
6900 |
|
July |
120 |
6000 |
1. Using the High-Low method calculate the variable cost per unit and fixed costs.
2. If the activity in August was 200 machine hours, what would the high-low method predict the overhead cost would be?
