Problem 1: Cost Terminology, Cost Flows and Cost Behavior

Part 1: The Miami Company suffered major losses in a fire on October 23, 2007. n addition to
destroyin! se"eral buildin!s, the bla#e destroyed the company$s %or& in process in"entory for an
entire product line. 'ortunately, the company %as insured. (o%e"er, the company needs to
substantiate the amount of the claim. To this end, the company has !athered the follo%in!
information that pertains to the production and sales of the affected product line:
). The company$s sales for the first 23 days of October amounted to *230,000. +ormally,
this product line !enerates a !ross profit e,ual to 30- of sales.
2. 'inished !oods in"entory %as *2.,000 on October ) and */2,000 on October 23.
3. On October ), %or& in process in"entory %as */1,000
/. 2urin! the first 23 days of October, the company incurred the follo%in! costs:
2irect materials used *73,000
2irect labor //,000
Manufacturin! o"erhead /2,000
Required:
4)5 Total Cost of 6oods Manufactured for the first 23 days of October 2007
425 The cost of 7or& in 8rocess n"entory that %as destroyed by the fire 4i.e.,
the cost of 7or& in 8rocess n"entory, )0923920075

Part 2: The follo%in! in"entory information is from the records of McMechen : ;ons for 2003.
n"entories
<e!innin! =ndin!
'inished !oods *))0,000 *.0,000
7or& in 8rocess 70,000 10,000
2irect materials .0,000 70,000
Other information:
Cost of direct materials used 4"ariable5 * >
Cost of direct manufacturin! labor 4"ariable5 22/,000
Manufacturin! o"erhead costs 4"ariable5 33,100
Manufacturin! o"erhead costs 4fi?ed5 )00,200
Mar&etin! and distribution cost 4"ariable5 10,000
Mar&etin! and distribution cost 4fi?ed5 00,000
@dministrati"e costs 4fi?ed5 30,000
Total 8rime costs /)7,000
Ae"enue 100,000
Required:
4)5 Total Cost of 2irect Materials 8urchased durin! 2003
425 Total Contribution Mar!in 4in terms of dollars5
435 Total Operatin! ncome 4in terms of dollars5
Problem 2 Cost stimation
2a"e$s B6olden <ro%nC 8anca&e Aestaurant features sourdou!h panca&es made form a
strain of sourdou!h datin! bac& to the @las&an !old rush. To plan for the future, 2a"e needs to
fi!ure out his cost beha"ior patterns. (e has the follo%in! information about his operatin! costs
and the number of panca&es ser"ed:
!onth "umber o# Pan$a%es Total &'erating Costs
Duly 3,300 *2,330
@u!ust 3,.00 *2,3.0
;eptember 3,200 *2,320
October 3,300 *2,330
+o"ember 3,100 *2,310
2ecember 3,320 *2,332
Required:
1( )se the high*low method to determine +ave,s o'erating $ost equation(
2( Predi$t the total monthly o'erating $osts i# +ave serves -.,/// 'an$a%es one
month(