Billy Adams, controller for Westcott, Inc., prepared the following budget for manu- facturing costs at two different levels of activity for 2008:
Direct Labor Hours Level of Activity
|
|
50,000
|
100,000
|
|
Direct materials
|
$300,000
|
$ 600,000
|
|
Direct labor
|
200,000
|
400,000
|
|
Depreciation (plant)
|
100,000
|
100,000
|
|
Subtotal
|
$600,000
|
$1,100,000
|
Machine Hours Level of Activity
|
|
200,000
|
300,000
|
|
Maintaining equipment
|
$360,000
|
$ 510,000
|
|
Machining
|
112,000
|
162,000
|
|
Subtotal
|
$472,000
|
$672,000
|
Material Moves Level of Activity
|
|
20,000
|
40,000
|
|
Materials handling
|
$165,000
|
$290,000
|
Number of Batches Inspected Level of Activity
| |
100 |
200 |
|
Inspections
|
$ 125,000
|
$ 225,000
|
|
Total
|
$1,362,000
|
$2,287,000
|
During 2008, Westcott worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred:
|
Direct materials
|
$440,000
|
|
Direct labor
|
355,000
|
|
Depreciation
|
100,000
|
|
Maintenance
|
425,000
|
|
Machining
|
142,000
|
|
Materials handling
|
232,500
|
|
Inspections
|
160,000
|
Westcott applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the far right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates.
Required
1. Prepare a performance report for Westcott's manufacturing costs in 2008.
2. Assume that one of the products produced by Westcott is budgeted to use 10,000 direct labor hours, 15,000 machine hours, and 500 moves and will be produced in five batches. A total of 10,000 units will be produced during the year. Calculate the budgeted unit manufacturing cost.
3. One of Westcott's managers said the following: "Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the above budget really needs to provide more detailed information. For example, I know that the materials-handling activity involves the usage of forklifts and operators, and this information is lost with simply reporting the total cost of the activity for various levels of output. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at $10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of $30,000 per year. Also, I know that fuel costs us about $0.25 per move."
Based on these comments, explain how this additional information may help Wescott better manage its costs. Also, assuming that these are the only three items, expand the detail of the flexible budget for materials handling to reveal the cost of these three resource items for 20,000 moves and 40,000 moves, respectively.