Concept explainers
1.
Prepare a performance report for incorporation M for the year 2015.
1.
Explanation of Solution
Prepare a performance report for incorporation M manufacturing:
Incorporation M | |||
Performance Report | |||
For the year 2015 | |||
Particulars | Actual costs | Budgeted costs | |
Direct materials | $ 440,000 | $ 480,000(1) | $40,000 F |
Direct labour | 355,000 | 320,000(2) | 35,000 U |
Depreciation | 100,000 | 100,000 | 0 |
Maintaining equipment | 425,000 | 435,000(3) | 10,000 F |
Machining | 142,000 | 137,000(4) | 5,000 U |
Moving materials | 232,500 | 240,000(5) | 7,500 F |
Inspecting products | 160,000 | 145,000(6) | 15,000 U |
Total | $ 1,854,500 | $ 1,857,000 | $2,500 F |
Table (1)
Therefore, the budget variance of incorporation M for the year 2015 is $2,500 favourable.
Note: Budgeted formulas for following items in the above table (1) are ascertained by using the high-low method that is using the appropriate cost driver for each method.
Working notes:
(1)
(2)
(3)
The fixed and variable costs portions of maintaining equipment is computed using high-low method as follows:
Therefore,
(4)
The fixed and variable costs portion of machining is determined using high-low method as follows:
Therefore,
(5)
The fixed and variable costs portion of moving materials is calculated using high-low method as follows:
Therefore,
(6)
The fixed and variable costs portion of inspecting products is determined using high-low method as follows:
Therefore,
2.
Determine the budgeted unit
2.
Explanation of Solution
Compute the pool rates:
Note: The pool (a) incorporates both material and labor costs. The total for each pool represents the appropriate costs related with the given driver in the flexible budget. The totals represent the second activity level of the budget.
Determine the unit cost:
Pool | Calculation | Amount ($) |
a | $ 110,000 | |
b | $ 33,600 | |
c | $ 3,625 | |
d | $ 5,625 | |
Total | $ 152,850 | |
Divide: Units | 10,000 units | |
Unit cost | | $ 15.29 (rounded off) |
Table (2)
Therefore, the unit cost for the incorporation M is $15.29.
3.
Describe how activity-based budgeting may provide useful data for non-value-added activities.
3.
Explanation of Solution
To provide more insight into controlling the activity and its associated cost, it is necessary to have significant knowledge about how the resource costs change with activity drivers and the consumption of resources by each activity.
Example: - The moving material is deemed to be a non-value-added activity, and efforts should be made to diminish the demands for this activity. If the number of moves can able to decrease to 20,000 from the expected 40,000, then the costs can be reduced by not only eliminating the need for the four operators but also by decreasing the demand to lease from four to two forklifts. Whereas, while considering in the short run, if the demand for their service is reduced the cost of leasing forklifts may insist.
Particulars | 20,000 moves | 40,000 moves |
Materials handling: | ||
Forklifts | $ 40,000 | $ 40,000 |
Operators | $ 120,000 | $ 240,000 |
Fuel | $ 5,000 | $ 10,000 |
Total | $ 165,000 | $ 290,000 |
Table (3)
The information unveils that in the short run the forklift leases must remain but the number of operators should be cut down and it is assumed that each operator can do 5,000 moves per year. An extra benefit of $20,000 can be achieved by subleasing the two forklifts. Therefore, the budget points out that by reducing the requirement for materials handling to 20,000 moves can able to save between $125,000 and $145,000 relative to the 40,000-move level. If the activity requirement is reduced to nil, an additional amount can able to save (up to $165,000).
Want to see more full solutions like this?
Chapter 12 Solutions
Cornerstones of Cost Management (Cornerstones Series)
- Adam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for the next year: If Adam uses the step-down (sequential) method, beginning with the Maintenance Department, to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be: a. 407,500. b. 422,750. c. 442,053. d. 445,000.arrow_forwardFirenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Previously, Sanjay Bhatt, Firenza Companys controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: The typical bid price includes a 40 percent markup over full manufacturing cost. Required: 1. Calculate a plantwide rate for Firenza Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate activity rates for the four overhead activities. What is the bid price of each job using these rates? 3. Which bids are more accurate? Why?arrow_forwardThe controller for Muir Companys Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table. Required: 1. Calculate an overhead rate based on machine hours using the total overhead cost and total machine hours. (Round the overhead rate to the nearest cent and predicted overhead to the nearest dollar.) Use this rate to predict overhead for each of the 12 months. 2. Run a regression equation using only machine hours as the independent variable. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the intercept and x-coefficient to the nearest cent and predicted overhead to the nearest dollar.) Is this flexible budget better than the budget in Requirement 1? Why or why not?arrow_forward
- Minor Co. has a job order cost system and applies overhead based on departmental rates. Service Department 1 has total budgeted costs of 168,000 for next year. Service Department 2 has total budgeted costs of 280,000 for next year. Minor allocates service department costs solely to the producing departments. Service Department 1 cost is allocated to producing departments on the basis of machine hours. Service Department 2 cost is allocated to producing departments on the basis of direct labor hours. Producing Department 1 has budgeted 8,000 machine hours and 12,000 direct labor hours. Producing Department 2 has budgeted 2,000 machine hours and 12,000 direct labor hours. What is the total cost allocation from the two service departments to Producing Department 1? a. 173,600 b. 140,000 c. 134,400 d. 274,400arrow_forwardJohn Sheng, a cost accountant at Starlet Company, is developing departmental factory overhead application rates for the companys Tooling and Fabricating departments. The budgeted overhead for each department and the data for one job are as follows: Using the departmental overhead application rates, total overhead applied to Job 231 in the Tooling and Fabricating departments will be: a. 225. b. 303. c. 537. d. 671.arrow_forwardFlaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: During the year, the company had the following activity: Actual fixed overhead was 12,000 less than budgeted fixed overhead. Budgeted variable overhead was 5,000 less than the actual variable overhead. The company used an expected actual activity level of 12,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required: 1. Compute the unit cost using (a) absorption costing and (b) variable costing. 2. Prepare an absorption-costing income statement. 3. Prepare a variable-costing income statement. 4. Reconcile the difference between the two income statements.arrow_forward
- Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows: The standard price paid per pound of direct materials is 1.60. The standard rate for labor is 8.00. Overhead is applied on the basis of direct labor hours. A plantwide rate is used. Budgeted overhead for the year is as follows: The company expects to work 12,000 direct labor hours during the year; standard overhead rates are computed using this activity level. For every small stapler produced, the company produces two regular staplers. Actual operating data for the year are as follows: a. Units produced: small staplers, 35,000; regular staplers, 70,000. b. Direct materials purchased and used: 56,000 pounds at 1.5513,000 for the small stapler and 43,000 for the regular stapler. There were no beginning or ending direct materials inventories. c. Direct labor: 14,800 hours3,600 hours for the small stapler and 11,200 hours for the regular stapler. Total cost of direct labor: 114,700. d. Variable overhead: 607,500. e. Fixed overhead: 350,000. Required: 1. Prepare a standard cost sheet showing the unit cost for each product. 2. Compute the direct materials price and usage variances for each product. Prepare journal entries to record direct materials activity. 3. Compute the direct labor rate and efficiency variances for each product. Prepare journal entries to record direct labor activity. 4. Compute the variances for fixed and variable overhead. Prepare journal entries to record overhead activity. All variances are closed to Cost of Goods Sold. 5. Assume that you know only the total direct materials used for both products and the total direct labor hours used for both products. Can you compute the total direct materials and direct labor usage variances? Explain.arrow_forwardAt the beginning of the year, Lopez Company had the following standard cost sheet for one of its chemical products: Lopez computes its overhead rates using practical volume, which is 80,000 units. The actual results for the year are as follows: (a) Units produced: 79,600; (b) Direct labor: 158,900 hours at 18.10; (c) FOH: 831,000; and (d) VOH: 112,400. Required: 1. Compute the variable overhead spending and efficiency variances. 2. Compute the fixed overhead spending and volume variances.arrow_forwardJoyT Company manufactures Maxi Dolls for sale in toy stores. In planning for this year, JoyT estimated variable factory overhead of 600,000 and fixed factory overhead of 400,000. JoyT uses a standard costing system, and factory overhead is allocated to units produced using standard direct labor hours. The level of activity budgeted for this year was 10,000 direct labor hours, and JoyT used 10,300 actual direct labor hours. Based on the output accomplished during this year, 9,900 standard direct labor hours should have been used. Actual variable factory overhead was 596,000, and actual fixed factory overhead was 410,000 for the year. Based on this information, the variable factory overhead controllable variance for JoyT for this year was: a. 24,000 unfavorable. b. 2,000 unfavorable. c. 4,000 favorable. d. 22,000 favorable.arrow_forward
- Spud, Inc. a manufacturer of gourmet potato chips, employs activity-based costing. The budgeted data for each of the activity cost pools is provided below for the year 2017. Estimated Overhead Expected Use of Cost Drivers per Activity Activity Cost Pools Ordering and receiving $73,800 12,000 orders Food processing 420,750 55,000 machine hours Packaging 1,365,000 420,000 labor hours For 2017, the company had 10,000 orders and used 48,000 machine hours, and labor hours totaled 490,000. Calculate the overhead rates for each activity. (Round answers to 2 decimal places, e.g. 12.25.) Overhead Rates Ordering and receiving per order %24 Food processing per machine hour 2$ Packaging per labor hour LINK TO TEXT INTERACTIVE TUTORIAL What is the total overhead applied? Total overhead appliedarrow_forwardGottshall Inc. makes a range of products. The company's predetermined overhead rate is $19 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead $ 225,000 Fixed manufacturing overhead $ 630,000 Direct labor-hours 45,000. Component P0 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows: Direct materials $ 21.00 Direct labor 40.80 Manufacturing overhead applied 32.30 Unit product cost $ 94.10 An outside supplier has offered to supply component P0 for $78 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Gottshall chronically has idle capacity. Required: Is the offer from the outside supplier financially…arrow_forwardShilongo Ltd uses costing to attribute costs to individual products and services provided to its customers. It has begun the preparation of its fixed production cost budget for the forthcoming period. The company three production departments Machining, Assembly and Finishing; and two service departments Stores and Maintenance. The following costs have been produced: Machining Assembly Finishing Stores Maintenance 2,500 1,500 1,000 Overhead cost $ 6,000 800 The number of machine and labor hours budgeted for the forthcoming period is budgeted as follows:- Machining Assembly Finishing Machine hours 500 40 50 Labor hours 100 300 200 Overheads are absorbed in Assembly and Finishing departments on a Labor hour basis; and in Machining departments they are absorbed on a machine hour basis. It has been estimated that service departments usage is as follows: Machining Assembly Finishing Stores Maintenance Maintenance 55% 20% 20% 5% - Stores 40% 30% 20% 10% Required: b) Calculate the overhead…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning