1) CVP / Breakeven: Santa has decided to sell autographed pictures of his self 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 onetime "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?
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?