Problem 1: Master Budget
Omega, Inc. has developed the following sales forecast for the first six months of the coming year
|
Month
|
Sales (in units)
|
|
January
|
30,000
|
|
February
|
50,000
|
|
March
|
70,000
|
|
April
|
80,000
|
|
May
|
60,000
|
|
June
|
50,000
|
The beginning inventory on January 1 is 8,000 units. The desired ending inventory for the coming year is to be 25 percent of next month's sales.
Each unit requires 6 units of material A at $8 per unit and 3 units of material B at $2 per unit. There are 15,000 units of A and 4,500 units of B on hand January 1 and the desired ending inventory for these will be 30 percent of next month's needs for the coming year.
a. Prepare production budgets for February, March and April.
b. Prepare purchase budgets for materials A and B in units and dollars for the same months.
Problem 2: Direct Cost Variance Analysis
Ken Co. uses standard costing for accounting. Following is the standards for production of its only product:
Direct material: 18 pounds at $25 per pound
Direct labor: 6 hours at $18 per hour.
During March company records showed the following:
Material purchased: 16,000 pounds at a cost of 352,000
Material used: 15,000 pounds
Direct labor hours: 4,700 hrs at a cost of $21.00 per hrs
Units produced: 800 units
a. Compute the direct labor efficiency and price variances.
b. Compute the direct material efficiency and price variances.
c. Explain how a favorable direct material price variance may be related to an unfavorable direct material efficiency variance.
Problem 3: OH Cost Variance Analysis
Jake Company, which manufactures electrical switches, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below:
Variable overhead (5 hours @ $12 per direct manufacturing labor hour) $ 60
Fixed overhead (5 hours @ $15* per direct manufacturing labor hour) 75
Total overhead per switch $135
*Based on capacity of 200,000 direct manufacturing labor hours per month.
The following information is available for the month of November:
- 46,000 switches were produced although 40,000 switches were scheduled to be produced.
- 225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000.
- Variable manufacturing overhead costs were $2,750,000.
- Fixed manufacturing overhead costs were $3,050,000.
a. Find the variable overhead spending and efficiency variances for November.
b. The fixed overhead budget variance for November.
c. Find the fixed overhead production-volume variance for November.
Problem 4: Absorption vs. Variable Costing
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
|
|
Selling price
|
$160
|
|
|
|
|
|
|
Units in beginning inventory
|
0
|
|
|
Units produced
|
6,800
|
|
|
Units sold
|
6,500
|
|
|
|
|
|
|
Variable costs per unit:
|
|
|
|
Direct materials
|
$51
|
|
|
Direct labor
|
$40
|
|
|
Variable manufacturing overhead
|
$7
|
|
|
Variable selling and administrative
|
$12
|
|
|
|
|
|
|
Fixed costs:
|
|
|
|
Fixed manufacturing overhead
|
$88,400
|
|
|
Fixed selling and administrative
|
$81,300
|
a. Prepare the Income Statement using Absorption Costing
b. Prepare the Income Statement using Variable Costing