Problem 1 - Preparation of Master Budget
1. Total sales revenue: $1,100,000
3. Cost of purchases (paperboard): $97,000
5. Total overhead: $148,500
7. Predetermined overhead rate: $40 per hour
FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables. The canned food box (type C) and the perishable food box (type P) have the following material and labor requirements.
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Type of Box
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C
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P
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Direct material required per 100 boxes:
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Paperboard ($.20 per pound)
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30 pounds
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70 pounds
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Corrugating medium ($.10 per pound)
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20 pounds
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30 pounds
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Direct labor required per 100 boxes ($12.00 per hour)
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25 hour
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.50 hour
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The following manufacturing-overhead costs are anticipated for the next year. The predetermined overhead rate is based on a production volume of 495,000 units for each type of box. Manufacturing overhead is applied on the basis of direct-labor hours.
Indirect material 10,500
Indirect labor 50,000
Utilities 25,000
Property taxes 18,000
Insurance 16,000
Depreciation 29,000
Total $148,500
The following selling and administrative expenses are anticipated for the next year.
Salaries and fringe benefits of sales personnel $ 75,000
Advertising 15,000
Management salaries and fringe benefits 90,000
Clerical wages and fringe benefits 26,000
Miscellaneous administrative expenses 4,000
Total $210,000
The sales forecast for the next year is as follows:
Sales Volume Sales Price
Box type C 500,000 boxes $ 90.00 per hundred boxes
Box type P 500,000 boxes $130.00 per hundred boxes
The following inventory information is available for the next year. The unit production costs for each product are expected to be the same this year and next year
Expected Inventory Desired Ending Inventory January 1 December 31
Finished goods:
Box type C 10,000 boxes 5,000 boxes
Box type P 20,000 boxes 15,000 boxes
Raw material:
Paperboard 15,000 pounds 5,000 pounds
Corrugating medium 5,000 pounds 10,000 pounds
Required: Prepare a master budget for FreshPak Corporation for the next year. Assume an income tax rate of 40 percent. Include the following schedules.
1. Sales budget.
2. Production budget.
3. Direct-material budget.
4. Direct-labor budget.
5. Manufacturing-overhead budget.
6. Selling and administrative expense budget.
7. Budgeted income statement. (Hint: To determine cost of goods sold, first compute the manufacturing cost per unit for each type of box. Include applied manufacturing overhead in the cost.)
Problem 2 - Straightforward Computation of Overhead Variances
The following data are the actual results for Marvelous Marshmallow Company for October.
Actual output 9,000 cases
Actual variable overhead $405,000
Actual fixed overhead $122,000
Actual machine time 40,500 machine hours
Standard cost and budget information for Marvelous Marshmallow Company follows:
Standard variable-overhead rate $9.00 per machine hour
Standard quantity of machine hours 4 hours per case of marshmallows
Budgeted fixed overhead $120,000 per month
Budgeted output 10,000 cases per month
Required:
1. Use any of the methods explained in the chapter to compute the following variances. Indicate whether each variance is favorable or unfavorable, where appropriate.
a. Variable-overhead spending variance.
b. Variable-overhead efficiency variance.
c. Fixed-overhead budget variance.
d. Fixed-overhead volume variance.
2. Build a spreadsheet: Construct an Excel spreadsheet to solve the preceding requirement. Show how the solution will change if the following information changes: actual output was 9,100 cases, and actual variable overhead was $395,000.