Horne Builders Began Business on January 1 of the Current

question 10

Essay

Horne Builders began business on January 1 of the current year, producing a single product that is popular with contractors. Demand was very strong, allowing the company to sell its entire manufacturing output of 100,000 units. The following unit costs were incurred: $\begin{array}{l}\begin{array}{lll} \text {Manufacturing costs}\\ \text {Direct materials}\\ \text {Direct labour}\\ \text {Variable overhead}\\ \text {Fixed overhead}\\ \text {Selling \& administrative costs}\\ \text {Variable}\\ \text {Fixed}\\\end{array}\begin{array}{lll}\\\$ 20 \\13 \\16 \\11 \\\\10 \\7\\\end{array}\end{array}$ Horne anticipates an increase in productive output to 150,000 units and sales of 145,000 units in the next accounting period. The company uses appropriate drivers to determine cost behaviour and estimates.
Required:
A. Assuming that present cost behaviour patterns continue, compute the total expected costs in the upcoming accounting period.
B. The company Controller is about to prepare a graph that shows the unit cost behaviour for variable selling and administrative cost. If the graph's horizontal axis is volume and the vertical axis is dollars, briefly describe what the graph should look like.
C. Determine whether the following costs are variable or fixed in terms of behaviour:
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.

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Definitions:

Proportionately Adjusted Net Income

Net income adjusted to reflect a company's share in the profits or losses of its associates or joint ventures.

Contractual Agreement

A legally binding agreement between two or more parties.

Financial Statements

Financial statements are formal records of the financial activities and condition of a business, person, or entity, providing an overview of a company’s financial performance and position.

Proportionately Adjusted Income Statement

An income statement in which each line item is adjusted in proportion to a certain factor or criteria to reflect a more comparable basis.