Plant & Equipment Depreciation Workers' Temp Agency Раyments Warehouse Salaries Rental Electricity $ 7,200 7,200 S 275 $ 150 $ 2,200 2,200 January February March Аpril Мay 540 350 385 1,100 1,350 1,750 7,200 325 655 2,200 7,200 7,200 2,200 2,200 340 695 725 335 June 7,200 1,500 200 675 2,200 Total $43,200 $6,240 $1,700 $3,410 $13,200 Information on number of machine hours, orders, and parts for the six-month period follows: Machine Hours Number of Orders Number of Parts January February March 2,000 10 200 3,100 5,800 40 600 350 550 Аpril May 6,200 6,500 400 580 510 570 June 6,000 410 300 Total 29,600 1,720 2,800 (сontinued) Gonyrinht 2018 Cengane All Rinhts Reserved conied scanned whole or in part wcN 02-200-202

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Darnell Poston, owner of Poston Manufacturing, Inc., wants to determine the cost behavior of
labor and overhead. Darnell pays his workers a salary; during busy times, everyone works to get
the orders out. Temps (temporary workers hired through an agency) may be hired to pack and

prepare completed orders for shipment. During slower times, Darnell catches up on bookkeep-
ing and administrative tasks while the salaried workers do preventive maintenance, clean the

lines and building, etc. Temps are not hired during slow times. Darnell found that workers’ sal-
aries, temp agency payments, rentals, utilities, and plant and equipment depreciation are the

largest dollar accounts. He believes that workers’ salaries and plant and equipment depreciation
are fixed, temp agency payments are associated with the number of orders (since temp workers are used to pack and prepare completed orders for shipment), and electricity is associated with the number of machine hours. When the number of different parts stored by Poston exceeds the space in the materials storeroom, Darnell rents nearby warehouse space. He can rent as much or as little space as he wants on a month-to-month basis. Therefore, he believes warehouse rental payments are variable with the number of parts purchased and stored. The account balances for
the past six months as well as the six-month total are as follows:

Required:
1. Calculate the monthly average account balance for each account. Calculate the average
monthly amount for each of the three drivers.
2. Calculate fixed monthly cost and the variable rates for temp agency payments, warehouse
rent, and electricity. Express the results in the form of an equation for total cost.
3. In July, Darnell predicts there will be 420 orders, 250 parts, and 5,900 machine hours. What
is the total labor and overhead cost for July?
4. What if Darnell buys a new machine in July for $24,000? The machine is expected to last 10
years and will have no salvage value at the end of that time. What part of the cost equation
will be affected? How? What is the new expected cost in July?

Plant &
Equipment
Depreciation
Workers'
Temp Agency
Раyments
Warehouse
Salaries
Rental
Electricity
$ 7,200
7,200
S 275
$ 150
$ 2,200
2,200
January
February
March
Аpril
Мay
540
350
385
1,100
1,350
1,750
7,200
325
655
2,200
7,200
7,200
2,200
2,200
340
695
725
335
June
7,200
1,500
200
675
2,200
Total
$43,200
$6,240
$1,700
$3,410
$13,200
Information on number of machine hours, orders, and parts for the six-month period follows:
Machine Hours
Number of Orders
Number of Parts
January
February
March
2,000
10
200
3,100
5,800
40
600
350
550
Аpril
May
6,200
6,500
400
580
510
570
June
6,000
410
300
Total
29,600
1,720
2,800
(сontinued)
Gonyrinht 2018 Cengane
All Rinhts Reserved
conied scanned
whole or in part wcN 02-200-202
Transcribed Image Text:Plant & Equipment Depreciation Workers' Temp Agency Раyments Warehouse Salaries Rental Electricity $ 7,200 7,200 S 275 $ 150 $ 2,200 2,200 January February March Аpril Мay 540 350 385 1,100 1,350 1,750 7,200 325 655 2,200 7,200 7,200 2,200 2,200 340 695 725 335 June 7,200 1,500 200 675 2,200 Total $43,200 $6,240 $1,700 $3,410 $13,200 Information on number of machine hours, orders, and parts for the six-month period follows: Machine Hours Number of Orders Number of Parts January February March 2,000 10 200 3,100 5,800 40 600 350 550 Аpril May 6,200 6,500 400 580 510 570 June 6,000 410 300 Total 29,600 1,720 2,800 (сontinued) Gonyrinht 2018 Cengane All Rinhts Reserved conied scanned whole or in part wcN 02-200-202
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