PROBLEM 10-21



PROBLEM 9-1A______________________________________________________________

Gower Ltd., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2001.

Account Classification Amount

Direct materials All variable £300,000

Direct manufacturing labour All variable 225,000

Power All variable 37,500

Supervision labour 20% variable 56,250

Materials-handling labour 50% variable 60,000

Maintenance labour 40% variable 75,000

Depreciation 0% variable 95,000

Rent, property taxes, and administration 0% variable 100,000

Gower Ltd, produced 75,000 units of product in 2001. Gower’s management is estimating costs for 2002 on the basis of 2001 numbers. The following additional information is available for 2002:

a. Direct materials prices in 2002 are expected to increase by 5% compared with 2001.

b. Under the terms of the contract, direct manufacturing labour wage rates are expected to increase by 10% in 2002 compared with 2001.

c. Power rates and wage rates for supervision, materials handling, and maintenance are not expected to change from 2001 to 2002.

d. Depreciation costs are expected to increase by 5%, and rent, property taxes, and administration costs are expected to increase by 7%.

e. Gower, Inc., expects to manufacture and sell 80,000 units in 2002.

Required:

1. Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2002. Estimate total manufacturing costs for 2002.

2. Calculate Gower=s total manufacturing cost per unit in 2001, and estimate total manufacturing cost per unit in 2002.

3. How can you get better estimates of fixed and variable costs? Why would these better estimates be useful to Gower?

PROBLEM 9-1A

Continued

Instructions:

1. Review the printed template called Problem 9-1 that follows these instructions. Most of the problem data have been entered for you in the data input section of the spreadsheet.

Enter amounts where indicated.

2. There are 13 FORMULAS in the template that you need to provide to complete your analysis. Using the spaces provided below, write the formulas where requested in the template.

FORMULA 1 _________________ FORMULA 8 _________________

FORMULA 2 _________________ FORMULA 9 _________________

FORMULA 3 _________________ FORMULA 10 _________________

FORMULA 4 _________________ FORMULA 11 _________________

FORMULA 5 _________________ FORMULA 12 _________________

FORMULA 6 _________________ FORMULA 13 _________________

FORMULA 7 _________________

3. Click the Lotus or Excel icon from the program manager screen to start the spreadsheet program. Click on the Open File SmartIcon/Button to retrieve the template for the problem. Enter the missing amounts in the appropriate cells on the template. Then enter the 13 FORMULAS where indicated on the template.

Type the answer where indicated.

4. Click the Save File SmartIcon/Button to save your work.

5. Click the Print SmartIcon to display the Print dialog box. Click the OK button to print your work.

For Excel users, click the Print Button to print your work.

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