# Peterson Company, Dexter Industries & MotorQueen, Inc

The following information is available regarding the total

manufacturing overhead of Peterson Company for a recent four month

period.

Direct Labor Manufacturing

Hours Overhead

May 90,000 $213,000

June 100,000 227,000

July 70,000 185,000

August 80,000 199,000

1. Refer to the above information. Using the high-low method,

compute the variable element of manufacturing overhead cost per

direct labor hour.

a. $0.71 per direct labor hour.

b. $2.27 per direct labor hour.

c. $1.40 per direct labor hour.

d. $2.31 per direct labor hour.

2. Refer to the above information. Using the high-low method,

compute the fixed element of Peterson's monthly overhead cost.

a. $185,000.

b. $87,000.

c. $98,000.

d. $140,000.

3. Refer to the above information. Peterson's projected September

operations will require approximately 120,000 direct labor hours.

Using the high-low method, compute total manufacturing overhead

estimated for September.

a. $272,400.

b. $317,143.

c. $255,000.

d. $168,000.

4. A company with an operating income of $75,000 and a contribution

margin ratio of 60% has a margin of safety of:

a. $45,000.

b. $125,000.

c. $170,000.

d. It is not possible to determine the margin of safety from the

information provided.

5. A company with monthly revenue of $100,000, variable costs of

$40,000, and fixed costs of $25,000 has a contribution margin of:

a. $100,000.

b. $75,000.

c. $60,000.

d. $35,000.

6. If the monthly sales volume required to break even is $60,000 and

monthly fixed costs are $18,000, the contribution margin ratio is:

a. 30%.

b. 70%.

c. 42.9%.

d. 333.33%.

7.Dexter Industries currently manufactures and sells 20,000 power

saws per month, although it has the capacity to produce 35,000

units per month. At the 20,000-unit-per-month level of production,

the per-unit cost is $40, consisting of $28 in variable costs and $12

in fixed costs. Dexter sells its saws to retail stores for $70 each. King

Distributors has offered to purchase 5,000 saws per month at a

reduced price. Dexter can manufacture these additional units with

no change in its present level of fixed manufacturing costs.

Refer to the information above. Assume that King Distributors

offers to purchase the additional 5,000 saws at a price of $32 per

unit. If Dexter accepts this price, Dexter's monthly gross profit on

sales of power saws will:

a. Increase by $20,000.

b. Increase by $160,000.

c. Decrease by $40,000.

d. Decrease by $240,000.

8. MotorKing Corporation manufactures and sells 1,200 tractors each

month. The primary component in each tractor is the motor.

MotorKing has the monthly capacity to produce 1,500 motors. The

variable costs associated with manufacturing each motor are shown

below:

direct materials $20

direct labor 12

variable manufacturing overhead 25

Fixed manufacturing overhead per month (for up to 1,500 units of

production) averages $24,000. MotorQueen, Inc., has offered to

purchase 200 motors from MotorKing per month to be used in its

own outboard motors.

Refer to the information above. If MotorQueen's order is rejected,

what will be MotorKing's average unit cost of manufacturing each

motor?

a. $75.

b. $57.

c. $77.

d. Some other amount.

#### Solution Preview

The following information is available regarding the total

manufacturing overhead of Peterson Company for a recent four month

period.

Direct Labor Manufacturing

Hours Overhead

May 90,000 $213,000

June 100,000 227,000

July 70,000 185,000

August 80,000 199,000

1. Refer to the above information. Using the high-low method,

compute the variable element of manufacturing overhead cost per

direct labor hour.

a. $0.71 per direct labor hour.

b. $2.27 per direct labor hour.

c. $1.40 per direct labor hour.

d. $2.31 per direct labor hour.

The answer is c Construct the equation 100,000x +y = 227,000 and 90,000x +y =213,000 and solve for x. You get 1.4

2. Refer to the above information. Using the high-low method,

compute the fixed element of Peterson's monthly overhead cost.

a. $185,000.

b. $87,000.

c. $98,000.

d. $140,000.

The answer is b. Solve the above equation for y.

3. Refer to the above information. Peterson's projected September

operations will require ...

#### Solution Summary

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