Harvard Square Inc., a leading manufacturing company has two main lines of products: Traditional and Modern with unit sales prices of $400 and $550. Currently manufacturing overheads are applied as $580 per direct labor hours. Below is some internal company information.
Harvard Square
Partial budgeted statement of gross margin 2019
| Products Traditional |
Modern | Total | |
| Sales in units | 12500 | 12500 | 25000 |
| Beginning inventory | $ 600,000.00 | $ 750,000.00 | $ 1,350,000.00 |
| Direct material | $ 2,500,000.00 | $ 4,375,000.00 | $ 6,875,000.00 |
| Direct labor | $ 462,962.50 | $ 231,482.50 | $ 694,445.00 |
| Ending inventory | $ 600,000.00 | $ 750,000.00 | $ 1,350,000.00 |
Overhead breakdown in percentage
| Machining | 50.00% |
| Assembly | 25.00% |
| Material Handling | 7.00% |
| Inspection | 18.00% |
| Total | 100.00% |
| Products | ||
| Cost pool info for 2019 | Traditional | Modern |
| Direct labor hours | 2500 | 1250 |
| Machine hours | 37500 | 75000 |
| Assembly hours | 15000 | 13750 |
| Material handling parts | 12.5 | 201.25 |
| Inspection hours | 1250 | 15001.25 |
| Product | ||
| Projections 2020 | Traditional | Modern |
| Ending inventory | $ 325,000.00 | $ 550,000.00 |
| Sales in units | 12750 | 12750 |
Direct material, direct labors and total overhead are expected to increase by 10% each in 2020.
Unit sale prices for both products are expected to increase by $25 each in 2020
Percentage of overhead breakdown remains the same in 2020
The cost drives hours for overhead are staying the same in 2020 (Hint: Cost per hour will change)
There are two clients with special orders for traditional product. The two clients ordered the same number of units
You tracked their COGS by its extra number of specifications per units by month in 2019
| Client one in 2019 | # of specifications | COGS |
| Jan | 75 | $ 45,000.00 |
| Feb | 55 | $ 32,000.00 |
| Mar | 100 | $ 55,000.00 |
| Apr | 150 | $ 78,000.00 |
| May | 55 | $ 36,000.00 |
| Jun | 27 | $ 34,000.00 |
| Jul | 19 | $ 19,000.00 |
| Aug | 27 | $ 21,000.00 |
| Sep | 58 | $ 39,000.00 |
| Oct | 71 | $ 51,000.00 |
| Nov | 38 | $ 36,000.00 |
| Dec | 114 | $ 74,000.00 |
| Total | 789 | $ 520,000.00 |
| Client two in 2019 | # of specifications | COGS |
| Jan | 83 | $ 25,000.00 |
| Feb | 63 | $ 15,000.00 |
| Mar | 128 | $ 45,000.00 |
| Apr | 158 | $ 60,000.00 |
| May | 63 | $ 30,000.00 |
| Jun | 42 | $ 25,000.00 |
| Jul | 35 | $ 15,000.00 |
| Aug | 41 | $ 20,000.00 |
| Sep | 69 | $ 35,000.00 |
| Oct | 85 | $ 45,000.00 |
| Nov | 50 | $ 25,000.00 |
| Dec | 124 | $ 60,000.00 |
| Total | 941 | $ 400,000.00 |
Required (Do not round down in calculations until the final answer at two decimal point.)
- Prepare a gross margin table based on traditional costing method with sales and COGS in total dollars for 2019 for both product lines.
- Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2019 for both product lines.
- What does the information in both 2019 tables tell you?
- Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2020 for both product lines.
- Calculate the fixed cost and variable cost components of COGS for the two clients using the least squares regression method. Show your work and write out the regression model equation for each client.
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