Ross Company manufactures and sells a basic low cost model of computer tablet.

It  has  recently generated the following  information available  regarding  production costs at various levels of monthly production:

Required:

a)       Classify each cost as fixed, variable or mixed, using production volume as  the cost driver.                   (4 marks)

b)        Use the high-low method to separate mixed costs into their fixed and variable components.          (4 marks)

c)        Develop  an  equation  for total  monthly  production  costs.  If  Ross  Company

expects a production volume of 8000 tablets in the coming month, predict the total production cost.  (6 marks)

d)        Base on a sales price of $80 per tablet and a fixed selling and admin cost of $40,000, prepare a projected contribution income statement for a production of 12,000 tablets.   (6 marks)

Question 2 (20 marks)

(This part is independent from part 1 a) to 1 d))

For the coming month, Ross company has plans to make and sell 3 other more expensive models of tablets. The price and variable cost and  sales mix for each type is as follows. Total fixed cost related to the 3 new types of tablets   is $60,000 per

month.

Required:

a) Calculate the break-even point in sales dollars for Pretty Pink, Wit White and Baby Blue tablets for the coming month.  (6 marks)

b) If Ross Company has a target income for these 3 new products  for the coming year of $300,000, how many Pretty Pink, Wit White and Baby Blue tablets  will company have to sell?      (4 marks)

c) What is the company’s margin of safety in dollar value for the year?         ( 3 marks)

d)  Why cost-volume-profit analysis can be useful to managers ? Give 2 reasons  ( 4 marks)

e)  Ross Company is thinking of acquiring a company. Base on their research, Company X and Company Y are similar except Company X’s costs are mainly variable whereas Company Y’s costs are mostly fixed.

When sales increase, which company will realize a higher increase in profits? Explain  (3 marks)

Question 3 (10 marks)

(This part is independent from Question 1 and 2)

Ross Company uses a job-order costing system and a predetermined overhead rate based on machine hours.

At the beginning of the year, the company estimated manufacturing overhead for the year would be $240,000 and machine hours would be 8,000.

The following information pertains to December of the current year: