Question 1 - Tuna Company set the following standard unit costs for its single product.
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Direct materials (28 Ibs. @ $3 per Ib.)
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$84.00
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Direct labor (6 hrs. @ $6 per hr.)
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36.00
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Factory overhead-variable (6 hrs. @ $4 per hr.)
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24.00
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Factory overhead-fixed (6 hrs. @ $5 per hr.)
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30.00
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Total standard cost
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$174.00
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The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 50,000 units per quarter. The following flexible budget information is available.
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Operating Levels
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70%
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80%
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90%
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Production in units
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35,000
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40,000
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45,000
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Standard direct labor hours
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210,000
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240,000
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270,000
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Budgeted overhead
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Fixed factory overhead
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$1,200,000
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$1,200,000
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$1,200,000
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Variable factory overhead
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$840,000
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$960,000
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$1,080,000
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During the current quarter, the company operated at 90% of capacity and produced 45,000 units of product; actual direct labor totaled 263,000 hours. Units produced were assigned the following standard costs:
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Direct materials (1,260,000 Ibs. @ $3 per Ib.)
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$3,780,000
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Direct labor (270,000 hrs. @ $6 per hr.)
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1,620,000
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Factory overhead (270,000 hrs. @ $9 per hr.)
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2,430,000
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Total standard cost
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$7,830,000
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Actual costs incurred during the current quarter follow:
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Direct materials (1,255,000 Ibs. @ $3.10)
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$3,890,500
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Direct labor (263,000 hrs. @ $5.75)
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1,512,250
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Fixed factory overhead costs
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2,332,264
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Variable factory overhead costs
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2,183,396
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Total actual costs
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$9,918,410
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Required:
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor variance, including its rate and efficiency variances.
3. Compute the overhead controllable and volume variances.
Question 2 - Pebco Company's 2011 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.
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PEBCO COMPANY Fixed Budget Report For Year Ended December 31, 2011
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Sales
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$3,150,000
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Cost of goods sold
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Direct materials
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$945,000
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Direct labor
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225,000
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Machinery repairs (variable cost)
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45,000
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Depreciation-plant equipment
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315,000
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Utilities ($45,000 is variable)
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195,000
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Plant management salaries
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220,000
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1,945,000
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Gross profit
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1,205,000
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Selling expenses
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Packaging
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90,000
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Shipping
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90,000
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Sales salary (fixed annual amount)
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235,000
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415,000
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General and administrative expenses
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|
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Advertising expense
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150,000
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Salaries
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230,000
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Entertainment expense
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90,000
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470,000
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Income from operations
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$320,000
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Required -
1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units.
3. The company's business conditions are improving. One possible result is a sales volume of approximately 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2011 budgeted amount of $320,000 if this level is reached without increasing capacity?
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2011 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?