TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry

CASE 13–30 Make or Buy; Utilization of a Constrained Resource [LO1, LO3, LO5]

TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:

WVD Drums
Selling price per drum . . . . . . . . . . . . . . $149.00
Cost per drum:
Direct materials . . . . . . . . . . . . . . . . . $52.10
Direct labor ($18 per hour) . . . . . . . . 3.60
Manufacturing overhead . . . . . . . . . . 4.50
Selling and administrative expense. . 29.80 90.00
Margin per drum . . . . . . . . . . . . . . . . . . $ 59.00

AND SO ON

ALL 5 REQUIREMENTS ANSWERED.

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White Woods manufactures jewelry boxes

White Woods manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct labor are traced directly to the products. Manufacturing overhead costs are allocated based on machine hours. Data for 2012 follow:

Estimated (Budget) Actual
Machine hours 25,000 hours 32,100 hours
Maintenance labor (repairs to equipment) $12,000 $28,500
Plant supervisor's salary 47,000 48,000
Screws, nails, and glue 24,000 45,000
Plant utilities 41,000 96,850
Freight out 37,000 46,500
Depreciation on plant and equipment 87,000 83,000
Advertising expense 43,000 54,000

Requirements
1. Compute the predetermined manufacturing overhead rate.
2. Post actual and allocated manufacturing overhead to the Manufacturing overhead T-account.
3. Close the under- or overallocated overhead to Cost of goods sold.
4. The predetermined manufacturing overhead rate usually turns out to be inaccurate. Why don’t accountants just use the actual manufacturing overhead rate?

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2-45 (Profitability opportunity cost) Dawson Company produces and sells 80,000 boxes of specialty foods each year

2-45 (Profitability opportunity cost) Dawson Company produces and sells 80,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annual costs.

Cost Item Total Costs
Variable Production costs $400,000
Fixed Production costs 480,000
Variable selling costs 320,000
Fixed selling and admin costs 200,000
Total costs $1,400,000

Dawson normally charges $25 per box. A new distributor has offered to purchase 8,000 boxes at a special price of $22 per box. Dawson will incur additional packaging costs of $1 per box to complete this order.

* A) Suppose Dawson has a surplus capacity to produce 8,000 more boxes. What will be the effect on Dawson's income if it accepts this order?
* B) Suppose that instead of having surplus capacity to produce 8,000 more boxes. Dawson has surplus capacity to produce only 3,000 more boxes. What will be the effect on Dawson's income if it accepts the new order for 8,000 boxes?

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