Paul Horton is concerned about losses of materials in production, especially since the prices of materials may increase.

Data with respect to materials for one product line are:

The product weight yield is 75 percent of the input for all three materials.
The labor rate is $14.40 an hour, and 12 finished units are made each hour.
Variable overhead is $2 per unit of product. Fixed overhead is budgeted at $2,700,000 for the next quarter. The company includes only variable costs as product costs.
Horton believes that the yield from materials should be increased to 80 percent of materials inputs. Also, with some changes in production methods, 15 finished units could be made each hour. During the next quarter, the company plans to produce and sell 1,800,000 finished units at a price of $14 per unit.
Required (Use of spreadsheet software is recommended.):
1. Prepare a budgeted income statement for the manufacturing operation under present conditions without savings in materials or labor time.
2. Comment on the following:

(a) “What if’ Horton achieves the planned savings in materials yield?

(b) “What if Horton implements the planned labor saving changes?

(c) “What if? Horton achieves the planned savings in materials yield and the planned labor saving changes?

Transcribed Image Text:

Material A Material B Material C Quantity Per Unit in Final Product 24 pounds 12 pounds 12 pounds Materials Price Per Pound $0.12 0.08 0.08