A manufacturing company HES Inc. has two product lines. Traditional product has unit price of $340 and Classic has a unit price of $480. Firm’s manufacturing overhead costs are applied as $420 per direct labor hour.
HES Inc
Budgeted statement of gross margin 2020
Products
Traditional Classic Total
Sales in units 10000 8000 18000
Beginning finished goods $480,000.00 $500,000.00 $980,000.00
Direct material $2,000,000.00 $3,400,000.00 $5,400,000.00
Direct labor $370,370.00 $185,186.00 $555,556.00
Ending finished goods $480,000.00 $520,000.00 $1,000,000.00
Overhead breakdown in percentage
Machining 49.00%
Assembly 29.60%
Material Handling 6.95%
Inspection 14.45%
Total 100.00%
Products
| Cost pool info for 2020 | Traditional | Classic |
| Direct labor hours | 2000 | 1000 |
| Machine hours | 30000 | 60000 |
| Assembly hours | 12000 | 11000 |
| Material handling parts | 10 | 20 |
| Inspection hours | 1000 | 1500 |
Products
Projections 2021 Traditional Classic
Ending inventory in dollars $460,000.00 $510,000.00
Sales in units 10200 7800
Material, labor and overhead costs are expected to increase by 10% each in 2021.
Unit sale prices for both products are expected to increase by $20 each in 2021.
Percentage of overhead remains the same in 2021.
The cost driver units are staying the same in 2021.
There are two clients A and B with special orders for Traditional. The two clients ordered the same number of units
You tracked its COGS by its extra number of specifications per units by month in 2020
| Client A in 2020 | # of specifications | COGS |
| Jan | 85 | $45,000.00 |
| Feb | 65 | $32,000.00 |
| Mar | 110 | $55,000.00 |
| Apr | 160 | $78,000.00 |
| May | 65 | $36,000.00 |
| Jun | 37 | $34,000.00 |
| Jul | 29 | $19,000.00 |
| Aug | 37 | $21,000.00 |
| Sep | 68 | $39,000.00 |
| Oct | 81 | $51,000.00 |
| Nov | 48 | $36,000.00 |
| Dec | 124 | $74,000.00 |
| Total | 909 | $520,000.00 |
| Client B in 2020 | # of specifications | COGS |
| Jan | 75 | $25,000.00 |
| Feb | 55 | $15,000.00 |
| Mar | 120 | $45,000.00 |
| Apr | 150 | $60,000.00 |
| May | 55 | $30,000.00 |
| Jun | 34 | $25,000.00 |
| Jul | 27 | $15,000.00 |
| Aug | 33 | $20,000.00 |
| Sep | 61 | $35,000.00 |
| Oct | 77 | $45,000.00 |
| Nov | 42 | $25,000.00 |
| Dec | 116 | $60,000.00 |
| Total | 845 | $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 2020 for both product lines
- Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2020 for both product lines
- What does the information in both 2020 tables tell you?
- Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2021 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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