Exercise 1
Problem 1
Second Chance Welding rebuilds spot welders for manufacturers. The following budgeted cost data for 2014 is available for Second Chance.
|
Time Charges
|
Material Loading Charges
|
|
Technicians' wages and benefits
|
$258,060
|
-
|
|
Parts manager's salary and benefits
|
-
|
$40,790
|
|
Office employee's salary and benefits
|
31,280
|
7,441
|
|
Other overhead
|
15,640
|
20,826
|
|
Total budgeted costs
|
$304,980
|
$69,057
|
The company desires a $39.70 profit margin per hour of labor and a 26% profit margin on parts. It has budgeted for 7,820 hours of repair time in the coming year, and estimates that the total invoice cost of parts and materials in 2014 will be $390,000.
(a) Compute the rate charged per hour of labor.
(b) Compute the material loading percentage.
Problem 2
Lovell Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the accounting department for a budgeted volume of 49,260 units.
|
Per Unit
|
Total
|
|
Direct materials
|
$51
|
|
|
Direct labor
|
$25
|
|
|
Variable manufacturing overhead
|
$25
|
|
|
Fixed manufacturing overhead
|
|
$591,120
|
|
Variable selling and administrative expenses
|
$14
|
|
|
Fixed selling and administrative expenses
|
|
$394,080
|
Lovell Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 20% return on investment (ROI) on invested assets of $1,229,000.
(a) Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 20% on this new component.
(b) Assuming that the volume is 36,710 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 20% on this new component.
Problem 3
Hannon Company makes swimsuits and sells these suits directly to retailers. Although Hannon has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $100. Given its experience, Hannon believes the All-Body suit would have the following manufacturing costs.
|
Direct materials
|
$23
|
|
Direct labor
|
28
|
|
Manufacturing overhead
|
48
|
|
Total costs
|
$99
|
(a) Assume that Hannon uses cost-plus pricing, setting the selling price 17% above its costs. What would be the price charged for the All-Body swimsuit?
(b) Assume that Hannon uses target costing. What is the price that Hannon would charge the retailer for the All-Body swimsuit?
Problem 4
Alma's Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recording of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,100 sessions. The company has invested $2,344,300 in the studio and expects a return on investment (ROI) of 20%. Budgeted costs for the coming year are as follows.
|
Per Session
|
Total
|
|
Direct materials (tapes, CDs, etc)
|
$
|
19.62
|
|
|
Direct labor
|
$
|
395.47
|
|
|
Variable overhead
|
$
|
49.36
|
|
|
Fixed overhead
|
|
|
1,041,656
|
|
Variable selling and administrative expenses
|
$
|
36.37
|
|
|
Fixed selling and administrative expenses
|
|
|
548,834
|
(a) Determine the total cost per session.
(b) Determine the desired ROI per session.
Problem 5
Second Chance Welding rebuilds spot welders for manufacturers. The following budgeted cost data for 2014 is available for Second Chance.
|
Time Charges
|
Material Loading Charges
|
|
Technicians' wages and benefits
|
$258,060
|
-
|
|
Parts manager's salary and benefits
|
-
|
$40,790
|
|
Office employee's salary and benefits
|
31,280
|
7,441
|
|
Other overhead
|
15,640
|
20,826
|
|
Total budgeted costs
|
$304,980
|
$69,057
|
The company desires a $39.70 profit margin per hour of labor and a 26% profit margin on parts. It has budgeted for 7,820 hours of repair time in the coming year, and estimates that the total invoice cost of parts and materials in 2014 will be $390,000.
(a) Compute the rate charged per hour of labor.
(b) Compute the material loading percentage.
Exercise 2
Problem 1
Glendo Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2014.
1. Sales: Quarter 1, 29,000 bags; quarter 2, 43,100 bags. Selling price is $63 per bag.
2. Direct materials: Each bag of Snare requires 4 pounds of Gumm at a cost of $4 per pound and 8 pounds of Tarr at $1.50 per pound.
3. Desired inventory levels:
|
Type of Inventory
|
January 1
|
April 1
|
July 1
|
|
Snare (bags)
|
8,200
|
12,300
|
18,100
|
|
Gumm (pounds)
|
9,400
|
10,300
|
13,500
|
|
Tarr (pounds)
|
14,500
|
20,200
|
25,200
|
4.Direct labor: Direct labor time is 15 minutes per bag at an hourly rate of $16 per hour.
5. Selling and administrative expenses are expected to be 15% of sales plus $177,000 per quarter.
6. Income taxes are expected to be 30% of income from operations.
Your assistant has prepared two budgets: (1) The manufacturing overhead budget shows expected costs to be 150% of direct labor cost. (2) The direct materials budget for Tarr shows the cost of Tarr purchases to be $303,000 in quarter 1 and $425,000 in quarter 2.
(a) Prepare the sales budget. Prepare the production budget.
(b) Prepare the direct materials budget. Prepare the direct labor budget. Prepare the selling and administrative budget.
Problem 2
Deleon Inc. is preparing its annual budgets for the year ending December 31, 2014. Accounting assistants furnish the data shown below.
|
Product
JB 50
|
Product
JB 60
|
|
Sales budget:
|
|
|
|
Anticipated volume in units
|
401,300
|
201,200
|
|
Unit selling price
|
$23
|
$28
|
|
Production budget:
|
|
|
|
Desired ending finished goods units
|
27,100
|
16,100
|
|
Beginning finished goods units
|
34,200
|
14,500
|
|
Direct materials budget:
|
|
|
|
Direct materials per unit (pounds)
|
2
|
3
|
|
Desired ending direct materials pounds
|
33,800
|
19,800
|
|
Beginning direct materials pounds
|
42,300
|
11,600
|
|
Cost per pound
|
$3
|
$4
|
|
Direct labor budget:
|
|
|
|
Direct labor time per unit
|
0.3
|
0.6
|
|
Direct labor rate per hour
|
$10
|
$10
|
|
Budgeted income statement:
|
|
|
|
Total unit cost
|
$12
|
$22
|
An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative expense budget. The latter shows selling expenses of $662,300 for product JB 50 and $362,800 for product JB 60, and administrative expenses of $541,200 for product JB 50 and $344,200 for product JB 60. Income taxes are expected to be 30%.
(a) Prepare the sales budgets for the year.
(b) Prepare the production budgets for the year.
Problem 3
Chandler Ltd. estimates sales for the second quarter of 2014 will be as follows.
|
Month
|
Units
|
|
April
|
2,550
|
|
May
|
2,490
|
|
June
|
2,390
|
The target ending inventory of finished products is as follows.
|
March 31
|
2,020
|
|
April 30
|
2,200
|
|
May 31
|
2,150
|
|
June 30
|
2,320
|
2 units of material are required for each unit of finished product. Production for July is estimated at 2,690 units to start building inventory for the fall sales period. Chandler's policy is to have an inventory of raw materials at the end of each month equal to 60% of the following month's production requirements.
Raw materials are expected to cost $6 per unit throughout the period.
Calculate the May raw materials purchases in dollars.
Problem 4
Donnegal Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2014.
|
January
|
February
|
March
|
April
|
May
|
|
Estimated unit sales
|
10,300
|
11,000
|
8,700
|
8,800
|
8,300
|
|
Sales price per unit
|
$50.3
|
$47.4
|
$47.4
|
$47.4
|
$47.4
|
|
Direct labor hours per unit
|
2.5
|
2.5
|
1.7
|
1.7
|
1.7
|
|
Wage per direct labor hour
|
$7
|
$7
|
$7
|
$8
|
$8
|
Donnegal has a labor contract that calls for a wage increase to $8 per hour on April 1. New labor-saving machinery has been installed and will be fully operational by March 1.
Donnegal expects to begin the year with 15,800 frames on hand and has a policy of carrying an end-of-month inventory of 100% of the following month's sales, plus 50% of the second following month's sales.
(a) Prepare a production budget for Donnegal Company by month and for the first quarter of the year.
Exercise 3
Problem 1. Cook Company estimates that 357,400 direct labor hours will be worked during the coming year, 2014, in the Packaging Department. On this basis, the budgeted manufacturing overhead cost data are computed for the year.
|
Fixed Overhead Costs
|
Variable Overhead Costs
|
|
Supervision
|
$91,800
|
Indirect labor
|
$146,534
|
|
Depreciation
|
67,080
|
Indirect materials
|
85,776
|
|
Insurance
|
34,320
|
Repairs
|
53,610
|
|
Rent
|
27,720
|
Utilities
|
85,776
|
|
Property taxes
|
19,320
|
Lubricants
|
25,018
|
|
$240,240
|
|
$396,714
|
It is estimated that direct labor hours worked each month will range from 23,700 to 32,100 hours.
During October, 23,700 direct labor hours were worked and the following overhead costs were incurred.
Fixed overhead costs: Supervision $7,650, Depreciation $5,590, Insurance $2,816, Rent $2,310, and Property taxes $1,610.
Variable overhead costs: Indirect labor $10,793, Indirect materials, $5,237, Repairs $3,491, Utilities $5,974, and Lubricants $1,923.
(a) Prepare a monthly manufacturing overhead flexible budget for each increment of 2,800 direct labor hours over the relevant range for the year ending December 31, 2014.
Problem 2.
Crede Company budgeted selling expenses of $30,129 in January, $35,094 in February, and $39,998 in March. Actual selling expenses were $31,252 in January, $34,554 in February, and $46,197 in March.
Prepare a selling expense report that compares budgeted and actual amounts by month and for the year to date.
Problem 3.
Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
|
Indirect labor
|
$1.00
|
|
Indirect materials
|
0.50
|
|
Utilities
|
0.30
|
Fixed overhead costs per month are: Supervision $4,194, Depreciation $1,710, and Property Taxes $808. The company believes it will normally operate in a range of 7,000-12,100 direct labor hours per month.
Prepare a monthly manufacturing overhead flexible budget for 2014 for the expected range of activity, using increments of 1,700 direct labor hours.
Problem 4.
Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
|
Indirect labor
|
$1.00
|
|
Indirect materials
|
0.90
|
|
Utilities
|
0.40
|
Fixed overhead costs per month are: Supervision $3,884, Depreciation $1,342, and Property Taxes $893. The company believes it will normally operate in a range of 7,700-11,900 direct labor hours per month.
Assume that in July 2014, Thome Company incurs the following manufacturing overhead costs.
|
Variable Costs
|
Fixed Costs
|
|
Indirect labor
|
$10,266
|
Supervision
|
$3,884
|
|
Indirect materials
|
9,316
|
Depreciation
|
1,342
|
|
Utilities
|
3,765
|
Property taxes
|
893
|
(a) Prepare a flexible budget performance report, assuming that the company worked 10,500 direct labor hours during the month.
Problem 5.
The actual selling expenses incurred in March 2014 by DeWitt Company are as follows.
|
Variable Expenses
|
Fixed Expenses
|
|
Sales commissions
|
$11,204
|
Sales salaries
|
$34,673
|
|
Advertising
|
12,170
|
Depreciation
|
7,107
|
|
Travel
|
6,908
|
Insurance
|
1,980
|
|
Delivery
|
3,549
|
|
|
(a) Prepare a flexible budget performance report for March, assuming that March sales were $172,700. Variable costs and their percentage relationship to sales are: Sales Commissions 6%, Advertising 7%, Traveling 4%, and Delivery 2%. Fixed selling expenses will consist of Sales Salaries $34,673, Depreciation on Delivery Equipment $7,107, and Insurance on Delivery Equipment $1,980.