Exercise 13-5 Utilization of a Constrained Resource
Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and Contribution margin for one unit of each product follow:
Product
A B C
Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180 $270 $240
Variable expenses:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . 24 72 32
Other variable expenses . . . . . . . . . . . . . . . . . . 102 90 148
Total variable expenses . . . . . . . . . . . . . . . . . . . . . 126 162 180
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . $ 54 $108 $ 60
Contribution margin ratio . . . . . . . . . . . . . . . . . . . . 30% 40% 25%
The same raw material is used in all three products. Barlow Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.
Required:
1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.
2. Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C? Show computations.
3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials? Explain.
Click here for the solution: Barlow Company manufactures three products: A, B, and C
Showing posts with label manufactures. Show all posts
Showing posts with label manufactures. Show all posts
Friday, April 15, 2016
Thursday, November 26, 2015
The Door Company manufactures doors
The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering of data because of keypunch errors
_______________ Prevention costs
_______________ Appraisal costs
_______________ Internal failure costs
_______________ External failure costs
Click here for the solution: The Door Company manufactures doors
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering of data because of keypunch errors
_______________ Prevention costs
_______________ Appraisal costs
_______________ Internal failure costs
_______________ External failure costs
Click here for the solution: The Door Company manufactures doors
Wednesday, November 11, 2015
Harmony Audio Inc. manufactures two products: receivers and CD players
Harmony Audio Inc. manufactures two products: receivers and CD players. The factory overhead incurred is as follows
Indirect labor $210,000
Subassembly Dept 145,000
Final Assembly Dept 95,000
Total $450,000
The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows:
Activity Activity Cost Activity Base
Setup $90,000 Number of setups
Quality control 120,000 Number of inspections
Total $210,000
The activity-base usage quantities and units produced for the two products are shown below.
# of # of Direct Labor Direct Labor Units
Setups Inspections Hours-- Hours-- produce
Subassembly Final Assembly
Receivers 200 1,000 600 400 5.000
CD players 40 250 400 600 5,000
Total 240 1250 1,000 1,000 10,000
1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $250,000 and $200,000 for the Subassembly and Final Assembly departments, respectively.
Department Production department rate
Subassembly Dept $__________ per dlh
Final Assembly Dept $__________ per dlh
2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1).
Product Total factory overhead Factory overhead per unit
Receivers: $______________ $___________
Cd Player: $______________ $___________
3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments.
Activity Activity rate
Setup $____________ per setup
Quality Control $____________ per insp.
Subassembly Dept $____________ per dhl
Final Assembly Dept $____________ per dhl
4. Determine the total and per-unit cost assigned to each product under activity-based costing. Round the per unit amounts to the nearest whole cent.
Product Total Activity Cost Activity Cost per Unit
Receivers $___________ $_____________
CD Players $___________ $______________
5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate method and activity-based costing method. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Click here for the solution: Harmony Audio Inc. manufactures two products: receivers and CD players
Indirect labor $210,000
Subassembly Dept 145,000
Final Assembly Dept 95,000
Total $450,000
The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows:
Activity Activity Cost Activity Base
Setup $90,000 Number of setups
Quality control 120,000 Number of inspections
Total $210,000
The activity-base usage quantities and units produced for the two products are shown below.
# of # of Direct Labor Direct Labor Units
Setups Inspections Hours-- Hours-- produce
Subassembly Final Assembly
Receivers 200 1,000 600 400 5.000
CD players 40 250 400 600 5,000
Total 240 1250 1,000 1,000 10,000
1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $250,000 and $200,000 for the Subassembly and Final Assembly departments, respectively.
Department Production department rate
Subassembly Dept $__________ per dlh
Final Assembly Dept $__________ per dlh
2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1).
Product Total factory overhead Factory overhead per unit
Receivers: $______________ $___________
Cd Player: $______________ $___________
3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments.
Activity Activity rate
Setup $____________ per setup
Quality Control $____________ per insp.
Subassembly Dept $____________ per dhl
Final Assembly Dept $____________ per dhl
4. Determine the total and per-unit cost assigned to each product under activity-based costing. Round the per unit amounts to the nearest whole cent.
Product Total Activity Cost Activity Cost per Unit
Receivers $___________ $_____________
CD Players $___________ $______________
5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate method and activity-based costing method. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Click here for the solution: Harmony Audio Inc. manufactures two products: receivers and CD players
Monday, October 26, 2015
Mancini manufactures embroidered jackets
P23-33B Mancini manufactures embroidered jackets. The company prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a jacket is based on static budget volume of 14,000 jackets per month:
Actual cost and production information:
a. Actual production was 13,600 jackets.
b. Actual direct materials usage was 2.8 square feet per jacket, at an actual price of $4.10 per square foot.
c. Actual direct labor usage of 25,000 hours at a total cost of $237,500.
d. Total actual overhead cost was $79,000.
Computing and journalizing standard cost variances
Requirements
1. Compute the price and efficiency variances for direct materials and direct labor. (pp. 1168, 1170)
2. Journalize the usage of direct materials and the assignment of direct labor, including the related variances. (pp. 1175, 1177)
3. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance. (Hint: Remember that the fixed overhead in the flexible budget equals the fixed overhead in the static budget.) (pp. 1173, 1174)
4. Mancini’s management intentionally purchased superior materials for November production. How did this decision affect the cost variances? Overall, was the decision wise? (p. 1171)
Click here for the solution: Mancini manufactures embroidered jackets
Actual cost and production information:
a. Actual production was 13,600 jackets.
b. Actual direct materials usage was 2.8 square feet per jacket, at an actual price of $4.10 per square foot.
c. Actual direct labor usage of 25,000 hours at a total cost of $237,500.
d. Total actual overhead cost was $79,000.
Computing and journalizing standard cost variances
Requirements
1. Compute the price and efficiency variances for direct materials and direct labor. (pp. 1168, 1170)
2. Journalize the usage of direct materials and the assignment of direct labor, including the related variances. (pp. 1175, 1177)
3. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance. (Hint: Remember that the fixed overhead in the flexible budget equals the fixed overhead in the static budget.) (pp. 1173, 1174)
4. Mancini’s management intentionally purchased superior materials for November production. How did this decision affect the cost variances? Overall, was the decision wise? (p. 1171)
Click here for the solution: Mancini manufactures embroidered jackets
Ortega Industries Inc. manufactures in separate processes furniture for homes
ACC 560 Week 2 Assignment
P3-2A Ortega Industries Inc. manufactures in separate processes furniture for homes. In each process, materials are entered at the beginning, and conversion costs are incurred uniformly. Production and cost data for the first process in making two products in two different manufacturing plants are as follows.
Cutting Department
Plant 1 Plant 2
Production Data-July T12-Tables C10-Chairs
Work in process units, July 1 -0- -0-
Units started into production 20,000 16,000
Work in process units, July 31 3,000 500
Work in process percent complete 60 80
Cost Data-July
Work in process, July 1 $ -0- $ -0-
Materials 380,000 288,000
Labor 234,400 125,900
Overhead 104,000 96,700
Total $718,400 $510,600
a) For each plant:
1. Compute the physical units of production
2. Compute equivalent units of production for materials and for conversion costs.
3. Determine the unit costs of production.
4. Show the assignment of costs to units transferred out and in process.
b) Prepare the production cost report for Plant 1 for July 2008
Click here for the solution: Ortega Industries Inc. manufactures in separate processes furniture for homes
P3-2A Ortega Industries Inc. manufactures in separate processes furniture for homes. In each process, materials are entered at the beginning, and conversion costs are incurred uniformly. Production and cost data for the first process in making two products in two different manufacturing plants are as follows.
Cutting Department
Plant 1 Plant 2
Production Data-July T12-Tables C10-Chairs
Work in process units, July 1 -0- -0-
Units started into production 20,000 16,000
Work in process units, July 31 3,000 500
Work in process percent complete 60 80
Cost Data-July
Work in process, July 1 $ -0- $ -0-
Materials 380,000 288,000
Labor 234,400 125,900
Overhead 104,000 96,700
Total $718,400 $510,600
a) For each plant:
1. Compute the physical units of production
2. Compute equivalent units of production for materials and for conversion costs.
3. Determine the unit costs of production.
4. Show the assignment of costs to units transferred out and in process.
b) Prepare the production cost report for Plant 1 for July 2008
Click here for the solution: Ortega Industries Inc. manufactures in separate processes furniture for homes
Chen Company manufactures basketballs
ACC 560 Week 2 Assignment
P3-5A Chen Company manufactures basketballs. Materials are added at the beginning of the production process and conversion costs are incurred uniformly. Production and cost data for the month of July 2008 are as follows.
Production Data-Basketballs Units Percent Complete
Work in process units, July 1 500 60%
Units started into production 1,000
Work in process units, July 31 600 30%
Cost Data - Basketballs
Work in process, July 1
Materials $750
Conversion costs 600 $1,350
Direct materials 2,400
Direct labor 1,580
Manufacturing overhead 1,060
a. Calculate the following.
1. The equivalent units of production for materials and conversion.
2. The unit costs of production for materials and conversion costs.
3. The assignment of costs to units transferred out and in process at the end of the period.
b. Complete the production cost report for the month of July for the basketballs
Click here for the solution: Chen Company manufactures basketballs
P3-5A Chen Company manufactures basketballs. Materials are added at the beginning of the production process and conversion costs are incurred uniformly. Production and cost data for the month of July 2008 are as follows.
Production Data-Basketballs Units Percent Complete
Work in process units, July 1 500 60%
Units started into production 1,000
Work in process units, July 31 600 30%
Cost Data - Basketballs
Work in process, July 1
Materials $750
Conversion costs 600 $1,350
Direct materials 2,400
Direct labor 1,580
Manufacturing overhead 1,060
a. Calculate the following.
1. The equivalent units of production for materials and conversion.
2. The unit costs of production for materials and conversion costs.
3. The assignment of costs to units transferred out and in process at the end of the period.
b. Complete the production cost report for the month of July for the basketballs
Click here for the solution: Chen Company manufactures basketballs
Saturday, October 17, 2015
Galavic Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin plant
E4-8 Galavic Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin plant. The following costs are budgeted for the first quarter's operations.
Machine setup, indirect materials $ 4,000
Inspections 16,000
Tests 4,000
Insurance, plant 110,000
Engineering design 140,000
Depreciation, machinery 520,000
Machine setup, indirect labor 20,000
Property taxes 29,000
Oil, heating 19,000
Electricity, plant lighting 21,000
Engineering prototypes 60,000
Depreciation, plant 210,000
Electricity, machinery 36,000
Custodial (machine maintenance) wages 19,000
Classify the above costs of Galavic Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, maintenance. Next, identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.
Click here for the solution: Galavic Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin plant
Machine setup, indirect materials $ 4,000
Inspections 16,000
Tests 4,000
Insurance, plant 110,000
Engineering design 140,000
Depreciation, machinery 520,000
Machine setup, indirect labor 20,000
Property taxes 29,000
Oil, heating 19,000
Electricity, plant lighting 21,000
Engineering prototypes 60,000
Depreciation, plant 210,000
Electricity, machinery 36,000
Custodial (machine maintenance) wages 19,000
Classify the above costs of Galavic Corporation into activity cost pools using the following: engineering, machinery, machine setup, quality control, factory utilities, maintenance. Next, identify a cost driver that may be used to assign each cost pool to each line of snowmobiles.
Click here for the solution: Galavic Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin plant
Wednesday, October 14, 2015
Mozena Corporation manufactures a single product (ACC 560 Week 4)
ACC 560 Week 4 Assignment
E5-6 Mozena Corporation manufactures a single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 3,000 units. The utilities and maintenance costs are mixed costs. The fixed portions of these costs are $300 and $200, respectively.
Production in Units 3,000
Production Costs
Direct Materials $7,500
Direct labor 15,000
Utilities 1,800
Property taxes 1,000
Indirect labor 4,500
Supervisory salaries 1,800
Maintenance 1,100
Depreciation 2,400
Instructions
(a) Identify the above costs as variable, fixed, or mixed.
(b) Calculate the expected costs when production is 5,000 units.
Click here for the solution: Mozena Corporation manufactures a single product (ACC 560 Week 4)
E5-6 Mozena Corporation manufactures a single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 3,000 units. The utilities and maintenance costs are mixed costs. The fixed portions of these costs are $300 and $200, respectively.
Production in Units 3,000
Production Costs
Direct Materials $7,500
Direct labor 15,000
Utilities 1,800
Property taxes 1,000
Indirect labor 4,500
Supervisory salaries 1,800
Maintenance 1,100
Depreciation 2,400
Instructions
(a) Identify the above costs as variable, fixed, or mixed.
(b) Calculate the expected costs when production is 5,000 units.
Click here for the solution: Mozena Corporation manufactures a single product (ACC 560 Week 4)
Spencer Company manufactures and sells three products
E6-11 Spencer Company manufactures and sells three products. Relevant per unit data concerning each product are given below.
Product
A B C
Selling price $9 $12 $14
Variable costs and expenses $3 $9.50 $12
Machine hours to produce 2 1 2
Instructions:
(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.
(b) Assuming 1,500 additional machine hours are available, which product should be manufactured?
(c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
Click here for the solution: Spencer Company manufactures and sells three products
Product
A B C
Selling price $9 $12 $14
Variable costs and expenses $3 $9.50 $12
Machine hours to produce 2 1 2
Instructions:
(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.
(b) Assuming 1,500 additional machine hours are available, which product should be manufactured?
(c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
Click here for the solution: Spencer Company manufactures and sells three products
Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
P6-3A Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Manning is currently operating at full capacity with limited machine time. Sales and production information relevant to each model follows.
Product
Economy Standard Deluxe
Selling price $30 $50 $100
Variable costs and expenses $12 $18 $42
Machine hours required .5 .8 1.6
Instructions
(a) Ignoring the machine time constraint, which single product should Manning Industries produce?
(b) What is the contribution margin per unit of limited resource for each product?
(c) If additional machine time could be obtained, how should the additional time be used?
Click here for the solution: Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Product
Economy Standard Deluxe
Selling price $30 $50 $100
Variable costs and expenses $12 $18 $42
Machine hours required .5 .8 1.6
Instructions
(a) Ignoring the machine time constraint, which single product should Manning Industries produce?
(b) What is the contribution margin per unit of limited resource for each product?
(c) If additional machine time could be obtained, how should the additional time be used?
Click here for the solution: Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Baucom Industries Inc. manufactures only one product
Baucom Industries Inc. manufactures only one product. For the year ended December 31, 2010, the contribution margin increased by 36,000 from the planned level of 720,000. The president of Baucom Industries Inc. has expressed some concern about such a small increase and has requested a follow-up report. The following data have been gathered from the accounting records for the year ended December 31, 2010.
Sales: Actual: 1,470,000 Planned: 1,440,000 Difference-Increase (Decrease): 30,000
Less: Variable cost of goods sold: Actual 560,000 Planned 592,000 Difference-Increase (Decrease): (32,000)
Variable selling and administrative expenses: Actual 154,000 Planned: 128,000 Difference-Increase (Decrease): 26,000
Total: Actual 714,000 Planned: 720,000
Difference-Increase (Decrease): (6,000)
Contribution Margin Actual 756,000 Planned 720,000 Difference-Increase (Decrease): 36,000
Number of units sold: Actual 14,000 Planned 16,000
Per unit:
Sales price: Actual 105.00 Planned 90.00
Variable cost of goods sold: Actual 40.00 Planned 37.00
Variable selling and administrative expenses: Actual 11.00 Planned 8.00
Instructions:
1. Prepare a contribution margin analysis report for the year ended Dec 31, 2010.
2. At a meeting of the board of directors on Jan 30, 2011, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of 15.00 had the effect of decreasing sales volume. However, this was a favorable trade off. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let’s look into these expenses and get them under control. Also, let’s consider increasing the sales price to 120 and continue this favorable tradeoff between higher price and lower volume.
Do you agree with the President's comment? Explain.
Click here for the solution: Baucom Industries Inc. manufactures only one product
Sales: Actual: 1,470,000 Planned: 1,440,000 Difference-Increase (Decrease): 30,000
Less: Variable cost of goods sold: Actual 560,000 Planned 592,000 Difference-Increase (Decrease): (32,000)
Variable selling and administrative expenses: Actual 154,000 Planned: 128,000 Difference-Increase (Decrease): 26,000
Total: Actual 714,000 Planned: 720,000
Difference-Increase (Decrease): (6,000)
Contribution Margin Actual 756,000 Planned 720,000 Difference-Increase (Decrease): 36,000
Number of units sold: Actual 14,000 Planned 16,000
Per unit:
Sales price: Actual 105.00 Planned 90.00
Variable cost of goods sold: Actual 40.00 Planned 37.00
Variable selling and administrative expenses: Actual 11.00 Planned 8.00
Instructions:
1. Prepare a contribution margin analysis report for the year ended Dec 31, 2010.
2. At a meeting of the board of directors on Jan 30, 2011, the president, after reviewing the contribution margin analysis report, made the following comment:
It looks as if the price increase of 15.00 had the effect of decreasing sales volume. However, this was a favorable trade off. The variable cost of goods sold was less than planned. Apparently, we are efficiently managing our variable cost of goods sold. However, the variable selling and administrative expenses appear out of control. Let’s look into these expenses and get them under control. Also, let’s consider increasing the sales price to 120 and continue this favorable tradeoff between higher price and lower volume.
Do you agree with the President's comment? Explain.
Click here for the solution: Baucom Industries Inc. manufactures only one product
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant
PROBLEM 11–14 Comprehensive Variance Analysis [LO2, LO3, LO4]
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below:
Average per Month (in days)
1 2 3 4
Move time per unit . . . . . . . . . . . . . . . . . . . 0.4 0.3 0.4 0.4
Process time per unit . . . . . . . . . . . . . . . . 2.1 2.0 1.9 1.8
Wait time per order before start
of production . . . . . . . . . . . . . . . . . . . . . 16.0 17.5 19.0 20.5
Queue time per unit . . . . . . . . . . . . . . . . . 4.3 5.0 5.8 6.7
Inspection time per unit . . . . . . . . . . . . . . . 0.6 0.7 0.7 0.6
Budgeted Actual
Sales (15,000 pools) . . . . . . . . . . . . . . . . . . . . $450,000 $450,000
Variable expenses:
Variable cost of goods sold* . . . . . . . . . . . . 180,000 196,290
Variable selling expenses . . . . . . . . . . . . . . 20,000
Total variable expenses . . . . . . . . . . . . . . . . . . 200,000 216,290
Contribution margin . . . . . . . . . . . . . . . . . . . . . 250,000 233,710
Fixed expenses:
Manufacturing overhead . . . . . . . . . . . . . . . 130,000 130,000
Selling and administrative . . . . . . . . . . . . . . 84,000 84,000
Total fi xed expenses . . . . . . . . . . . . . . . . . . . . 214,000 214,000
Net operating income . . . . . . . . . . . . . . . . . . . $ 36,000 $ 19,710
*Contains direct materials, direct labor, and variable manufacturing overhead.
Standard Quantity Standard Price Standard
or Hours or Rate Cost
Direct materials . . . . . . . . . . . . . . . . . 3.0 pounds $2.00 per pound $ 6.00
Direct labor . . . . . . . . . . . . . . . . . . . . 0.8 hours $6.00 per hour 4.80
Variable manufacturing overhead . . . 0.4 hours* $ 3.00 per hour 1.20
Total standard cost . . . . . . . . . . . . . . $12.00
*Based on machine-hours.
Standard Costs and Operating Performance Measures 483
During June the plant produced 15,000 pools and incurred the following costs:
a. Purchased 60,000 pounds of materials at a cost of $1.95 per pound.
b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c. Worked 11,800 direct labor-hours at a cost of $7.00 per hour.
d. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine-hours was recorded. It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
a. Direct materials price and quantity variances.
b. Direct labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. What impact did this figure have on the company's income statement? Show computations.
3. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances.
Click here for the solution: Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below:
Average per Month (in days)
1 2 3 4
Move time per unit . . . . . . . . . . . . . . . . . . . 0.4 0.3 0.4 0.4
Process time per unit . . . . . . . . . . . . . . . . 2.1 2.0 1.9 1.8
Wait time per order before start
of production . . . . . . . . . . . . . . . . . . . . . 16.0 17.5 19.0 20.5
Queue time per unit . . . . . . . . . . . . . . . . . 4.3 5.0 5.8 6.7
Inspection time per unit . . . . . . . . . . . . . . . 0.6 0.7 0.7 0.6
Budgeted Actual
Sales (15,000 pools) . . . . . . . . . . . . . . . . . . . . $450,000 $450,000
Variable expenses:
Variable cost of goods sold* . . . . . . . . . . . . 180,000 196,290
Variable selling expenses . . . . . . . . . . . . . . 20,000
Total variable expenses . . . . . . . . . . . . . . . . . . 200,000 216,290
Contribution margin . . . . . . . . . . . . . . . . . . . . . 250,000 233,710
Fixed expenses:
Manufacturing overhead . . . . . . . . . . . . . . . 130,000 130,000
Selling and administrative . . . . . . . . . . . . . . 84,000 84,000
Total fi xed expenses . . . . . . . . . . . . . . . . . . . . 214,000 214,000
Net operating income . . . . . . . . . . . . . . . . . . . $ 36,000 $ 19,710
*Contains direct materials, direct labor, and variable manufacturing overhead.
Standard Quantity Standard Price Standard
or Hours or Rate Cost
Direct materials . . . . . . . . . . . . . . . . . 3.0 pounds $2.00 per pound $ 6.00
Direct labor . . . . . . . . . . . . . . . . . . . . 0.8 hours $6.00 per hour 4.80
Variable manufacturing overhead . . . 0.4 hours* $ 3.00 per hour 1.20
Total standard cost . . . . . . . . . . . . . . $12.00
*Based on machine-hours.
Standard Costs and Operating Performance Measures 483
During June the plant produced 15,000 pools and incurred the following costs:
a. Purchased 60,000 pounds of materials at a cost of $1.95 per pound.
b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
c. Worked 11,800 direct labor-hours at a cost of $7.00 per hour.
d. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine-hours was recorded. It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
a. Direct materials price and quantity variances.
b. Direct labor rate and efficiency variances.
c. Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. What impact did this figure have on the company's income statement? Show computations.
3. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances.
Click here for the solution: Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant
Moura Industries Inc. manufactures recreational vehicles
Moura Industries Inc. manufactures recreational vehicles. Moura uses a job order cost system. The time tickets from August jobs are summarized below.
Job 410 $3,400
Job 411 1,700
Job 412 1,400
Job 413 2,500
Factory supervision 1,900
Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $25 per direct labor hour. The direct labor rate is $15 per hour.
a. Journalize the entry to record the factory labor costs.
b. Journalize the entry to apply factory overhead to production for August.
Click here for the solution: Moura Industries Inc. manufactures recreational vehicles
Job 410 $3,400
Job 411 1,700
Job 412 1,400
Job 413 2,500
Factory supervision 1,900
Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $25 per direct labor hour. The direct labor rate is $15 per hour.
a. Journalize the entry to record the factory labor costs.
b. Journalize the entry to apply factory overhead to production for August.
Click here for the solution: Moura Industries Inc. manufactures recreational vehicles
Wednesday, October 7, 2015
Rand Medical manufactures lithotripters
P 15-3 Direct financing and sales-type lease; lessee and lessor
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2011.
Lease Description:
Quarterly lease payments $130,516 – beginning of each period
Lease term 5 years (20 quarters)
No residual value; no BPO
Economic life of lithotripter 5 years
Implicit interest rate and lessee’s incremental borrowing rate 12%
Fair value of asset $2,000,000
Collectibility of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred.
Required:
1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year (December 31).
3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2011.
Click here for the solution: Rand Medical manufactures lithotripters
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2011.
Lease Description:
Quarterly lease payments $130,516 – beginning of each period
Lease term 5 years (20 quarters)
No residual value; no BPO
Economic life of lithotripter 5 years
Implicit interest rate and lessee’s incremental borrowing rate 12%
Fair value of asset $2,000,000
Collectibility of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred.
Required:
1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year (December 31).
3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2011.
Click here for the solution: Rand Medical manufactures lithotripters
Monday, October 5, 2015
The Abco Company manufactures electrical assemblies
The Abco Company manufactures electrical assemblies. The current process uses 10 workers and produces 200 units per hour. You are considering changing the process with new assembly methods that increase output to 300 units per hour, but will require 14 workers. Particulars are as follows:
CURRENT PROCESS NEW PROCESS
OUTPUT (UNITS / HOUR) 200 300
NUMBER OF WORKERS 10 14
MATERIAL COST / HOUR $120 $150
Workers are paid at a rate of $10 per hour, and overhead is charged at 140% (or 1.4 times) labor costs. Finished switches sell for $20 / unit.
a. Calculate the multifactor productivity for the current process
b. Calculate the multifactor productivity for the new process
c. Determine if the new process should be implemented
Click here for the solution: The Abco Company manufactures electrical assemblies
CURRENT PROCESS NEW PROCESS
OUTPUT (UNITS / HOUR) 200 300
NUMBER OF WORKERS 10 14
MATERIAL COST / HOUR $120 $150
Workers are paid at a rate of $10 per hour, and overhead is charged at 140% (or 1.4 times) labor costs. Finished switches sell for $20 / unit.
a. Calculate the multifactor productivity for the current process
b. Calculate the multifactor productivity for the new process
c. Determine if the new process should be implemented
Click here for the solution: The Abco Company manufactures electrical assemblies
Friday, September 25, 2015
Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment
ACC 560 Week 6 Assignment
P10-5A Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2008, and relevant budget data are as follows.
Actual Comparison with Budget
Sales $1,500,000 $100,000 favorable
Variable cost of goods sold 700,000 60,000 unfavorable
Variable selling and administrative expenses 125,000 25,000 unfavorable
Controllable fixed cost of goods sold 170,000 On target
Controllable fixed selling and administrative expenses 80,000 On target
Average operating assets for the year for the Home Division were $2,500,000 which was also the budgeted amount.
Instructions
(a) Prepare a responsibility report for the Home Division.
(b) Evaluate the manager’s performance. Which items will likely be investigated by top management?
(c) Compute the expected ROI in 2009 for the Home Division, assuming the following independent changes to actual data.
1. Variable cost of goods sold is decreased by 6%.
2. Average operating assets are decreased by 10%.
3. Sales are increased by $200,000, and this increase is expected to increase contribution margin by $90,000.
Click here for the solution: Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment
P10-5A Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2008, and relevant budget data are as follows.
Actual Comparison with Budget
Sales $1,500,000 $100,000 favorable
Variable cost of goods sold 700,000 60,000 unfavorable
Variable selling and administrative expenses 125,000 25,000 unfavorable
Controllable fixed cost of goods sold 170,000 On target
Controllable fixed selling and administrative expenses 80,000 On target
Average operating assets for the year for the Home Division were $2,500,000 which was also the budgeted amount.
Instructions
(a) Prepare a responsibility report for the Home Division.
(b) Evaluate the manager’s performance. Which items will likely be investigated by top management?
(c) Compute the expected ROI in 2009 for the Home Division, assuming the following independent changes to actual data.
1. Variable cost of goods sold is decreased by 6%.
2. Average operating assets are decreased by 10%.
3. Sales are increased by $200,000, and this increase is expected to increase contribution margin by $90,000.
Click here for the solution: Dinkle Manufacturing Company manufactures a variety of tools and industrial equipment
Vintage Dresses Inc. manufactures dresses in a small manufacturing facility
PR 7-1B Vintage Dresses Inc. manufactures dresses in a small manufacturing facility. Manufacturing has 20 employees. Each employee presently provides 35 hours of productive labor per week. Information about a production week is as follows:
Standard wage per hr. $10.80
Standard labor time per dress 12 min.
Standard number of yds of fabric per dress 38 yds
Standard price per yd of fabric $2.90
Actual price per yd of fabric $2.75
Actual yds of fabric used during the week 12,100 yds
Number of dresses produced during the week 3,250
Actual wage per hour $11.00
Actual hours per week 700 hrs
a. Determine the standard cost per dress for direct materials and direct labor. Round the cost per unit to two decimal places.
b. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Use the minus sign to enter favorable variances as negative numbers.
c. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Use the minus sign to enter favorable variances as negative numbers.
Click here for the solution: Vintage Dresses Inc. manufactures dresses in a small manufacturing facility
Standard wage per hr. $10.80
Standard labor time per dress 12 min.
Standard number of yds of fabric per dress 38 yds
Standard price per yd of fabric $2.90
Actual price per yd of fabric $2.75
Actual yds of fabric used during the week 12,100 yds
Number of dresses produced during the week 3,250
Actual wage per hour $11.00
Actual hours per week 700 hrs
a. Determine the standard cost per dress for direct materials and direct labor. Round the cost per unit to two decimal places.
b. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Use the minus sign to enter favorable variances as negative numbers.
c. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Use the minus sign to enter favorable variances as negative numbers.
Click here for the solution: Vintage Dresses Inc. manufactures dresses in a small manufacturing facility
Putnam Corporation manufactures a single product
P11-1A Putnam Corporation manufactures a single product. The standard cost per unit of product is shown below.
Direct materials-1 pound plastic at $7.00 per pound $ 7.00
Direct labor-1.5 hours at $12.00 per hour 18.00
Variable manufacturing overhead 11.25
Fixed manufacturing overhead 3.75
Total standard cost per unit $40.00
The predetermined manufacturing overhead rate is $10 per direct labor hour ($15.00 ÷ 1.5). It was computed from a master manufacturing overhead budget based on normal production of 7,500 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $56,250 ($7.50 per hour) and total fixed overhead costs of $18,750 ($2.50 per hour). Actual costs for October in producing 4,900 units were as follows.
Direct materials (5,100 pounds) $ 37,230
Direct labor (7,000 hours) 87,500
Variable overhead 56,170
Fixed overhead 19,680
Total manufacturing costs $200,580
Direct materials-1 pound plastic at $7.00 per pound $ 7.00
Direct labor-1.5 hours at $12.00 per hour 18.00
Variable manufacturing overhead 11.25
Fixed manufacturing overhead 3.75
Total standard cost per unit $40.00
The predetermined manufacturing overhead rate is $10 per direct labor hour ($15.00 ÷ 1.5). It was computed from a master manufacturing overhead budget based on normal production of 7,500 direct labor hours (5,000 units) for the month. The master budget showed total variable costs of $56,250 ($7.50 per hour) and total fixed overhead costs of $18,750 ($2.50 per hour). Actual costs for October in producing 4,900 units were as follows.
Direct materials (5,100 pounds) $ 37,230
Direct labor (7,000 hours) 87,500
Variable overhead 56,170
Fixed overhead 19,680
Total manufacturing costs $200,580
The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.
Instructions:
a) Compute all of the materials and labor variances.
b) Compute the total overhead variance.
Instructions:
a) Compute all of the materials and labor variances.
b) Compute the total overhead variance.
Click here for the solution: Putnam Corporation manufactures a single product
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?
Click here for the solution: White Woods manufactures jewelry boxes
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?
Click here for the solution: White Woods manufactures jewelry boxes
Wednesday, September 23, 2015
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals
Ethics Case 10-12 Research and development
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2011, $220 million was spent on R&D. Of this amount, $30 million was spent on the purchase of equipment to be used in a research project involving the development of a new antibiotic.
The controller, Alice Cooper, is considering capitalizing the equipment and depreciating it over the five-year useful life of the equipment at $6 million per year, even though the equipment likely will be used on only one project. The company president has asked Alice to make every effort to increase 2011 earnings because in 2012 the company will be seeking significant new financing from both debt and equity sources. “I guess we might use the equipment in other projects later,” Alice wondered to herself.
Required:
1. Assuming that the equipment was purchased at the beginning of 2011, by how much would Alice's treatment of the equipment increase before tax earnings as opposed to expensing the equipment cost?
2. Discuss the ethical dilemma Alice faces in determining the treatment of the $30 million equipment purchase.
Click here for the solution: Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2011, $220 million was spent on R&D. Of this amount, $30 million was spent on the purchase of equipment to be used in a research project involving the development of a new antibiotic.
The controller, Alice Cooper, is considering capitalizing the equipment and depreciating it over the five-year useful life of the equipment at $6 million per year, even though the equipment likely will be used on only one project. The company president has asked Alice to make every effort to increase 2011 earnings because in 2012 the company will be seeking significant new financing from both debt and equity sources. “I guess we might use the equipment in other projects later,” Alice wondered to herself.
Required:
1. Assuming that the equipment was purchased at the beginning of 2011, by how much would Alice's treatment of the equipment increase before tax earnings as opposed to expensing the equipment cost?
2. Discuss the ethical dilemma Alice faces in determining the treatment of the $30 million equipment purchase.
Click here for the solution: Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals
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