Accounting 206 week 3

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Question description

1.  High-low method
The following cost data pertain to 20X6 operations of Heritage Products:

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Shipping costs





Orders shipped





The company uses the high-low method to analyze costs.

a.  Determine the variable cost per order shipped.

b.  Determine the fixed shipping costs per quarter.

c.  If present cost behavior patterns continue, determine total shipping costs for 20X7 if activity amounts to 570 orders.

2.  Break-even and other CVP relationships

Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.

a.  How many patient days does the hospital need to break even?

b.  What level of revenue is needed to earn a target income of $540,000?

c.  If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?

3.  Direct and absorption costing

The information that follows pertains to Consumer Products for the year ended December 31, 20X6.

Inventory, 1/1/X6

24,000 units

Units manufactured


Units sold


Inventory, 12/31/X6

? units

Manufacturing costs:

Direct materials

$3 per unit

Direct labor

$5 per unit

Variable factory overhead

$9 per unit

Fixed factory overhead


Selling & administrative expenses:


$2 per unit



The unit selling price is $26. Assume that costs have been stable in recent years.


a.  Compute the number of units in the ending inventory.

b.  Calculate the cost of a unit assuming use of:

1.  Direct costing.

2.  Absorption costing.

c.  Prepare an income statement for the year ended December 31, 20X6, by using direct costing.

d.  Prepare an income statement for the year ended December 31, 20X6, by using absorption costing.

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