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Methods of Estimating Costs-Account Analysis: Miller Fixture

Methods of Estimating Costs-Account Analysis: Miller Fixtures.
The accounting records for Miller Fixtures report the following costs for the past year.
Direct materials: 210,000
Direct labor 175,000
Variable overhead 154,000
Production was 210,000 units. Fixed manufacturing overhead was 240,000.
For the upcoming year, costs are expected to increase as follows: direct materials costs by 20%, excluding any effect of volume changes; direct labor by 4%; and fixed manufacturing overhead by 10%. Variable manufacturing overhead per unit is expected to stay the same.
Required:
a.Prepare a cost estimate for a volume level of 220,000 units of product this year. (use the worksheet graph below.
b. Determine the costs per unit for last year and this year.

A. Cost estimate with new costs and volume.

-------------------------
Cost Item

Last Year's Cost

(1)

Cost Change
(1 + Cost Increase)
(2) This Year's Cost
(at last year's volume)
(1) x (2) = (3)

Growth in Volume

(4)

This Year's Cost

(3) x (4) = (5)
Direct materials

Direct labor

Variable overhead

Fixed Overhead
Total costs

B. Costs per unit.

Methods of estimating costs: High-Low, Ethical issues
Coney Island Amusements Center provides the following data on the costs of maintenance and the number of visitors for the last 3 years:

Number of visitors per year (thousands) Maintenance costs ( $000)
1,825 2,925
2,007 3,225
2,375 3,750

Required
a. Use the high-low method to estimate the fixed cost of maintenance annually and the variable cost of maintenance per visitor.
b. The company expects a record 2,600,000 visitors next year. What would be the estimated maintenance costs?
c. Company management is considering eliminating the maintenance department and contracting with an outside firm. Management is especially concerned with the fixed costs of maintenance. The maintenance manager tells you, the cost analyst, that 2,375 visitors is an outlier and should not be used in the analysis. Assume that this will lower estimated fixed costs. Is it ethical to treat this observation as an outlier?

Solution Summary

The solution computes cost estimate and cost per unit for Miller Fixtures. And also calculates fixed cost using high-low method for Coney Island Amusement Centre.

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