1.

(TCO 1) For each of the following drivers identify an appropriate activity.

a. # of machines
Facility-Level Activities
b. # of setups
Batch-Level Activities
c. # of inspections
Batch-Level Activities
d. # of orders
Batch-Level Activities
e. # of runs
Product-Level Activities
f. # of bins or aisles Product-Level Activities
g. # of engineers
Facility-Level Activities
2. (TCO 2) Lubriderm Corporation has the following budgeted sales for the next sixmonth period:
Month Unit Sales
June 90,000
July 120,000
August 210,000
September 150,000
October 180,000
November 120,000
There were 30,000 units of finished goods in inventory at the beginning of June. Plans
are to have an inventory of finished products that equal 20% of the unit sales for the next
month.
Five pounds of materials are required for each unit produced. Each pound of material
costs $8. Inventory levels for materials are equal to 30% of the needs for the next month.
Materials inventory on June 1 was 15,000 pounds.
Prepare a purchases budget in pounds for July, August, and September, and give total
purchases in both pounds and dollars for each month.

Production Budget
Budgeted sales
Add: Required ending inventory

July
120,000
42,000

August
210,000
30,000

September
150,000
36,000

Total inventory requirements

Less: Beginning inventory

162,000
24,000

240,000
42,000

186,000
30,000

Budgeted production

138,000

198,000

156,000

July
138,000

August
198,000

September
156,000

297,000
690,000

234,000
990,000

987,000
207,000

1,224,000
297,000

1,032,000
234,000

Purchases needed in lbs.

Cost ($8 per lb.)

780,000
x $8

927,000
x $8

798,000
x $8

Total material purchases

$6,240,000

$7,416,000

$6,384,000

Purchases Budget
Production in units
Targeted ending inventory in lbs.
Production needs in lbs.

***

Total requirements in lbs.

Less: Beginning inventory in lbs.

*
**
***
****

****

**

252,000
780,000

0.3 times next month's needs

(180,000 + 24,000 - 36,000) times 5 lbs. x 0.3
5 lbs. times units to be produced, across row
(690,000 x .3) = 207,000 lbs., etc. row across

3. (TCO 3) As part of his job as cost analyst, Max Thompson collected the following
information concerning the operations of the Machining Department:
Observation Machine-hours Total Operating Costs
January 4,000 $45,000
February 4,600 49,500
March 3,800 45,750
April 4,400 48,000
May 4,500 49,800
Use the high-low method to determine the estimating cost function with machine-hours
as the cost driver.
Slope coefficient = ($49,500 $45,750) / (4,600 3,800) = $4.6875 per machine-hour
Constant = $49,500 - ($4.6875 x 4,600) = $27,937.50
Estimating equation = $27,937.50 + $4.6875X

4.
(TCO 5) Lewis Auto Company manufactures a part for use in its production of
automobiles. When 10,000 items are produced, the costs per unit are:
Direct materials $ 12
Direct manufacturing labor 60
Variable manufacturing overhead 24
Fixed manufacturing overhead 32
Total $128
Monty Company has offered to sell Lewis Auto Company 10,000 units of the part for
$120 per unit. The plant facilities could be used to manufacture another part at a savings
of $180,000 if Lewis Auto accepts the supplier's offer. In addition, $20 per unit of fixed
manufacturing overhead on the original part would be eliminated.
a. What is the relevant per unit cost for the original part?
b. Which alternative is best for Lewis Auto Company? By how much?
a.

Cost savings from use of facilities

Direct materials
Direct manufacturing labor
Variable manufacturing support
Avoidable fixed manufacturing support
Total relevant per unit costs
b.

$18
$12
60
24
20
$34

Make

Buy Effect of Buying

Purchase price
$1,200,000
$(1,200,000)
Cost savings in space
$180,000
180,000
Direct materials
$120,000
120,000
Direct manufacturing labor 600,000
600,000
Variable manufacturing support240,000
240,000
Fixed manufacturing support saved 200,000
200,000
Totals

$1340,000

The best alternative is to buy the part.

1,200,000

$140,000