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Absorption cost

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Standard absorption cost per unit.. A cost analyst for Stamper Manufacturing Co. has assembled the following data about the Model 24 stamp pad:

The piece of sheet metal from which six pad cases can be made costs $0.18.
This amount is based on the number of sheets in a 4,000 pound bundle of sheet metal, which is the usual purchase quantity.
The foam pad that is put in the case costs $0.05, based on the number of pads that can be cut from a large roll of foam.
Production standards, based on engineering analysis recognizing attainable performance, provide for the manufacture of 2,000 pads by two workers in an eight-hour shift. The standard direct labor pay rate is $14 per hour.
Manufacturing overhead is applied to units produced using a predetermined overhead application rate of $18 per direct labor hour of which $8 per hour is fixed manufacturing overhead.


a. Calculate the standard absorption cost of a package of 12 stamp pads.

b. Stamper Manufacturing Co.'s management is considering a special promotion that would result in increased sales of 1,000 packages of 12 pads per package. Calculate the cost per package that is relevant for this analysis.

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Question 2

Jay Manufacturing's sales slumped badly in 2006 due to so many people purchasing gifts online. The company's income statement showed the following results from selling 500,000 units of product: Net sales, $2,000,000; total costs and expenses, $2,500,000; and net loss of $500,000. Costs and expenses consisted of the following:

Total Variable Fixed
Cost of goods sold $2,000,000 $1,300,000 $700,000
Selling expenses 200,000 50,000 150,000
Administrative expenses 300,000 150,000 150,000
$2,500,000 $1,500,000 $1,000,000

Management is considering the following alternative for 2007:
Purchase new automated equipment that will change the proportion between variable and fixed costs to 40% variable and 60% fixed.

A. Determine the selling price per unit.
B. Compute the break-even point in dollars for 2006.
C. Compute the break-even point in dollars under the alternative course of action for 2007.
D. Which course of action do you recommend? Justify your answer.

Question 3

Fresh Air Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below:

Manufacturing Costs
Fixed overhead $ 108,000
Variable overhead $ 3 per unit
Direct labor $ 12 per unit
Direct material $ 30 per unit

Beginning inventory 0 units
Units produced 12,000
Units sold 10,000

Selling and administrative costs
Fixed $ 200,000
Variable $ 4 per unit sold

The portable cooking unit sells for $110. Management is interested in the opening month's results and has asked for an income statement.
Assume the company uses variable costing.
a. Calculate the production cost per unit, and prepare an income statement for the month of June 2005.
b. Explain the amount by which absorption costing income would differ from variable costing income. (Compute difference without computing absorption costing income

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