Assignment

Problem 1: Preparation of Master Budget

(1. Total sales revenue: $1,100,000 3. Cost of purchases (paper-board): $97,0005. Total overhead: $148,5007. 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.

Type of Box
CP
Direct material required per 100 boxes:
Paperboard ($.20 per............................................................30 pounds70 pounds
Corrugating medium ($.10 per pound) ...............................20 pounds30 pounds
Direct labor required per 100 boxes ($12.00 per hour) .25 hour.50 hour

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 VolumeSales Price

Box type C ............................................................. 500,000 boxes$ 90.00 per hundred boxes
Box type P ............................................................. 500,000 boxes130.00 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 manufactur-ing cost per unit for each type of box. Include applied manufacturing overhead in the cost.)

Problem 2: 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. Flexible Budgeting and the Management of Overhead and Support Activity Costs
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.