Question

Answer all these questions with the right answer letter next to each question number

32-Cotton Corp. currently makes 9,800 subcomponents a year in one of its factories. The unit costs to produce are:

	Per unit
Direct materials		$	29.00
Direct labor			25.00
Variable manufacturing overhead			18.00
Fixed manufacturing overhead			10.00
Total unit cost		$	82.00

An outside supplier has offered to provide Cotton Corp. with the 9,800 subcomponents at an $83.00 per unit price. Fixed overhead is not avoidable. If Cotton Corp. accepts the outside offer, what will be the effect on short-term profits?

Multiple Choice

A_$98,000 increase

B_$107,800 decrease

C_no change

D_$70,560 increase

46-Harbor Images has collected the following cost data for various levels of activity:   

Month	Images Created	Total Cost
August	5,900	$	5,680
September	7,650	$	6,300
October	8,000	$	9,026
November	4,400	$	5,210

a. Using the high-low method, determine the variable cost per image created and the total fixed cost. (Round your variable cost to 2 decimal places.)

b. Estimate the total costs when 6,400 images are created. (Do not round your intermediate calculations.)

Answer 1

1. B_$107,800 decrease

Totalcost of units produced by 32 cotton corp = 9800*82

= $803,600

Total cost if it accepts outside offer = (9800*83)+(9800*10)

= $911,400

The effect of short term profit if it accepts the outside offer

= 911,400-803,600

= $107,800 decrease

2.

a. Variable cost per image using high low method

= (9026-5210)/(8000-4400)

= 3816/3600

= $1.06

b. Total cost when 6400 images are created

= Variable cost + Fixed cost

Variable cost = 6400*1.06

Variable cost = $6,784

Fixed cost = 9,026-(8000*1.06)

Fixed cost = $546

Total cost when 6400 images are created = 6,784+546

Total cost when 6400 images are created = $7,330