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

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    1. (TCO 1) For each of the following drivers identify an appropriate activity.
    2. (TCO 2) Favata Company has the following information
      Month                   Budgeted Sales
      June                     $60,000
      July                      51,000
      August                  40,000
      September            70,000
      October                 72,000
      In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of next month's cost of sales. 
      Prepare a purchases budget for July through September.
    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.
  • (TCO 5) Collier Bicycles has been manufacturing its own wheels for its bikes.  The company is operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost.  The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively.  Normal production is 200,000 wheels per year. A supplier offers to make the wheels at a price of $4 each.  If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead being charged to the wheels will have to be absorbed by other products.
    A. Prepare an incremental analysis for the decision to make or buy the wheels.
    B.     Should Collier Bicycles buy the wheels from the outside supplier?  Justify your answer.

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