Shang Chi Company is a manufacturer of top-of-the-line fabric made of Hymenoptera silk. The company was established in the…

Shang Chi Company is a manufacturer of top-of-the-line fabric made of Hymenoptera silk. The company was established in the…

Question:

Don't use plagiarized sources. Get Your Custom Assignment on
Shang Chi Company is a manufacturer of top-of-the-line fabric made of Hymenoptera silk. The company was established in the…
From as Little as $13/Page

Transcribed Image Text:

Shang Chi Company is a manufacturer of top-of-the-line fabric made of Hymenoptera silk. The
company was established in the middle of 2015 and begun its operations on January 3, 2016.
In its first three years of operation, the company presented the following income statements:
Sales
Less: Cost of Sales
Shang Chi Company
Income Statement
For the Years Ended December 31
[in Chinese Yuan (11
Gross Profit
Less: Marketing and Administrative Expenses
Net Profit (Loss)
Schedule 1: Cost of Sales
Raw Materials Used
Direct Labor Cost
Factory Overhead Cost lat applied ratel
Cost of Goods Manufactured
Finished Goods, Jan 1
Cost of Goods Available for Sale
Finished Goods, Dec 31
Cost of Sales, Unadjusted
Under- (Over-) Applied Fixed Overhead
Cost of Sales, Adjusted
Sched
1
2016
11,040,000
4,800,000
6,240,000
6,412,500
(172,500)
2017
12,190,000
5,260,000
6,930,000
6,512,500
417,500
2016
2017
2,000,000 2,080,000
1,250,000 1,300,000
1,750,000 1.820,000
5,000,000 5,200,000
200,000
2018
2,160,000
1,350,000
1,890,000
5,400,000
100,000
5,500,000
(100,000) (500,000)
5,300,000
5,000,000
(40,000)
(80,000)
4,800,000 5,260,000 4,920,000
5,000,000 5,400,000
(200,000)
4,800,000
2018
11,500,000
4,920,000
6,580,000
6,452,500
127,500
Information relevant to the company’s operations during the past three years are described
below:
a. Shang Chi sells its fabric to different customers in bundles. Each bundle is sold by
the company for 250..
b. Bundles produced and sold by the company during the three-year period are given below:
2016
2017
2018
50,000
48,000
52,000
53,000
54,000
50,000
Produced
Sold
c. Factory overhead is applied by the entity at 35 per bundle based on a 50,000-bundle
capacity. This 50,000-bundle capacity is considered by the entity as its normal
capacity; while the 35 is a mixed rate for variable and fixed overhead.
d. Actual fixed costs incurred coincide with the fixed costs budgeted by the company.
The under- (over-) applied overhead represents the amount of difference between the
applied cost of fixed overhead in the company’s books and the actual fixed overhead
cost incurred.
e. There are no beginning and ending work-in-process at any given year. All goods placed
into process are finished by the end of the year.
f. Relevant range of production activity is from 40,000 to 60,000 bundles per annum.
Shang Chi is currently making its plans for 2019. It estimates that in 2019, demand for the
fabric will again rise by 5,000 bundles. However, the company wishes to cut back its
production and only produce enough bundles to cover the expected demand. Cost structure and
actual fixed costs are expected to remain constant, and no additional purchase of property
and equipment is expected to be made on the following year.
REQUIRED:
1. Using the method of least squares, determine the actual variable and fixed component
of the following costs:
a. Factory Overhead; and
b. Marketing and Administrative Expenses
2. Estimate the (al total expected actual cost of production and (b) total marketing and
administrative expense for 2019, assuming that the conditions provided in the last
paragraph of the case pushes through.

Expert Answer:

Answer rating: 100% (QA)

SOLUTION To determine the actual variable and fixed components of the factory overhead and marketing and administrative expenses we can use the method of least squares This method uses historical data
View the full answer