Hernandez Systems began business on January 1 of the current year, producing a single product that is popular with home builders. Demand was very strong, allowing the company to sell its entire manufacturing output of 80,000 units. The following unit costs were incurred:Manufacturing costs: Direct materials$15 Direct labor8 Variable overhead11 Fixed overhead6Selling and administrative costs:? Variable5 Fixed2Hernandez anticipates an increase in productive output to 100,000 units and sales of 95,000 units in the next accounting period. The company uses appropriate drivers to determine cost behavior and estimates.Required:A. Assuming that present cost behavior patterns continue, compute the total expected costs in the upcoming accounting period.B. Jan
Compton is about to prepare a graph that shows the unit cost behavior for variable selling and administrative cost. If the graph's horizontal axis is volume and the vertical axis is dollars, briefly describe what Compton's graph should look like.C. Determine whether the following costs are variable or fixed in terms of behavior:1. Yearly lease payments for a state-of-the-art cutting machine.2. A fee paid to a consultant who provided advice about quality issues. The fee was based on the number of consulting hours provided.3. Cost of an awards dinner for "star" salespeople.
What will be an ideal response?
A.
Direct materials (100,000 × $15)$1,500,000
| Direct labor (100,000 × $8) | 800,000 |
| Variable overhead (100,000 × $11) | 1,100,000 |
| Fixed overhead (80,000 × $6) | 480,000 |
| Variable selling and administrative (95,000 × $5) | 475,000 |
| Fixed selling and administrative (80,000 × $2) | 160,000 |
| Total costs | $4,515,000 |
B. The variable selling and administrative costs are constant at $5 per unit. Thus, the graph is a straight, horizontal line.
C.
1. Fixed
2. Variable
3. Variable
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Fill in the blank(s) with correct word
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