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Windward manufactures one product. The table below displays the weekly production costs. The managerial accounting team has noticed that output costs varied considerably from week to week.

Week	Output Units	Direct Materials	Direct Labor	Indirect Labor	Indirect Materials	Electricity	Factory Insurance	Other Overhead
1	800	$600	$1,000	$360	$600	$230	$250	$620
2	1000	750	1250	400	600	250	250	720
3	1200	900	1500	440	600	270	250	820

The unit selling price of the product is $8.00 and the sales force earns a 10% commission for each unit sold. Other administrative and selling expenses are fixed at $1,562 per week.

Windward does not carry inventory and, therefore, the number of units produced is equal to the number of units sold. Income information for three weeks is as follows:

Notice that cost of goods sold (COGS) per unit changes depending on output volume.

At 800 units sold, COGS per unit is $4.58.

At 1,000 units sold, COGS per unit is $4.22.

At 1,200 units sold, COGS per unit is $3.98.

Observing that COGS per unit declined as production volume increased, the accountants conducted a cost analysis. The cost analysis was used to support pricing decisions at Windward.

An average production volume over the three weeks was used to determine the cost of production, which was $6.58 per unit. The per-unit cost was also assumed to be the break-even cost, which was used to create guidelines for the sales force.

Instructions:

1. Complete the highlighted items in the Excel Template, following the directions provided in the worksheet. To earn points for this question, Excel formulas must be used to compute your answers.

1. Use the amounts you computed in the Excel Template to complete items (a) through (h):
2. The variable manufacturing cost per unit for this product is ________
3. The total variable cost per unit for this product is ________
4. The total fixed manufacturing cost for this product is ________
5. The total fixed cost for this product is ________
6. The total manufacturing cost when 1,000 units are produced is ________
7. The total cost when 1,000 units are produced is ________
8. The manufacturing cost per unit when 1,000 units are produced is ________
9. The total cost per unit when 1,000 units are produced is ________

Answer each of the following questions. Show your computations and formulas directly under each question.

1. How many units does Windward need to sell to break even? Show the formula to compute break-even and show all your computations.
2. Assume the office manager received a call from a customer who wanted to purchase 100 units of product (no sales commission on this order). If the break-even point has already been achieved by the sales team, what is the per-unit profit contributed by the sale of these additional 100 units? Show your computations and explain your answer.
3. Suppose a loyal customer requested to place a special order to buy 100 units at $5.50 per unit. This is a one-time only order, Windward has the capacity to fill this order, and by filling the order no other regular order will go unfilled. There is no sales commission on this special order. Assume the break-even point has already been met.
4. What would be the per-unit profit or loss associated with this order? Show your computations.
5. Is there an opportunity cost associated with accepting this order? Explain.
6. Would you fill this order if you were the manager? Explain why or why not.
7. What did you learn about relevant costs for decision making from completing this case?

Week

Units of Output

Direct Materials

Direct Labor

Indirect Labor

Indirect Materials

Electricity

Factory Insurance

Other Overhead

Windward

1

800

$600

1000

$360

$600

$230

$250

$620

2

1000

750

1250

400

600

250

250

720

Unit

Total

Cost of

3

1200

900

1500

440

600

270

250

820

Variable

Fixed

1000

Units

Manufacturing Cost

Cost

Cost

Total

Per Unit

Enter F, V, or M

V

V

M

F

M

F

M

Direct materials

$

Direct labor

$

Instructions:

Indirect labor

$

The purpose of this exercise is to help you to understand how costs behave relative to activity volume and

Indirect material

how to differentiate between total and per-unit fixed, variable, and mixed costs.

Electricity

Complete all the highlighted cells in this worksheet. Use Excel formulas for all computations.

Factory Insurance

Other overhead

1)

Determine whether each of the manufacturing costs listed above are fixed, variable, or mixed.

Total Manufacturing Costs

Enter F, V, or M into the appropriate boxes above.

Hint: if the total cost of an item is the same for all levels of output, the cost is fixed;

Administrative and Selling

if the unit cost of an item is the same for all levels of output, the cost is variable;

Admin/Selling Expenses

otherwise, the cost is mixed.

Total Costs

2)

Complete columns L and M in the table to the right.

For items categorized as variable ('V'): Enter the Excel formula to compute unit variable cost (in column L).

For items categorized as fixed ( 'F'): enter the total fixed cost (in column M).

For items categorized as mixed ('M'): See #3, below, for instructions.

3)

Use the High-Low method to separate mixed costs into their fixed and variable components.

Use Excel formulas to compute the fixed and variable costs. You may use the High-Low Worksheet to show

the computations or enter the formulas directly into the appropriate cells in the table.

Note: If you use the High-Low Worksheet, enter cell references in the table to the right to 'feed' your answers

answers from the worksheet.

4)

Use Excel formulas to compute Total cost of 1000 units for each cost item (in column O).

Use the information from columns L and M for your computations.

DO NOT feed totals from the original given data table. I need to see that you know how to compute

the amounts.

5)

Compute the Per-Unit cost for each cost item (in column P).

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