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.)

  1. Prepare a gross margin table based on traditional costing method with sales and COGS in total dollars for 2019 for both product lines.
  2. Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2019 for both product lines.
  3. What does the information in both 2019 tables tell you?
  4. Prepare a gross margin table based on activities method with sales and COGS in total dollars for 2020 for both product lines.
  5. 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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