ACC 321 Chapters 7 & 8: Handout Problem (Budgeting) "Il certainly is nice to see that small variance on the income state- ment after all the trouble we've had lately in controlling manufacturing costs," said Linda White, vice president of Molina Company. "The $2,250 variance reported last period is well below the 3% limit we have set for variances. We need to congratulate everybody on a job well done. The income statement to which Ms. White was referring is shown below: Flexible Budget Variance Actual costs 20,000 Units Budgeted $1,200,000 Variance $ Actual Sales ........................ $1,200,000 Less cost of goods sold (standard cost, $38 per unit)... 762,250 Gross margin.... 437,750 Less operating expenses! Selling expenses.... . . 200,000 Administrative expenses ...... . 150,000. Total operating expenses ......... 350,000 Net income . $ 87,750 b) Prepare Level 2 analysis for the plant manager (responsibility accounting) Sales Cost Static Volume Flexible Formula Budget Variance Budget Units produced & sold Manufacturing costs: Variable Direct Mat. $14/unit Variable Direct labor $12/unit Variable mfg. OH $3/unit Fixed Mfg. OH cost $9/unit Total Mfg. costs 760,000 440,000 2.250 (2,250) 200,000 150,000 350,000 90,000 $ $(2.250) The company produces and sells a single product. The standard cost card for the product follows: Standard Cost Card-Per Unit Direct materials, 4 yards at $3.50....... $14 Direct labor, 1.5 hours at 58 ..... Variable overhead, 1.5 hours at $2... 3 Fixed overhead, 1.5 hours at $6........ 9 Standard cost per unit... Chapter 7 Analysis: c) Prepare Level 3 analysis for the plant manager Flexible Cost Flexible Budget Formula Budget Variance Manufacturing costs: Variable Direct Mat. $14/unit Variable Direct labor $12/unit Actual Costs 12 $38 The following additional information is available for the year just completed: a. The company manufactured and sold 20,000 units of product during the year. b. A total of 78,000 yards of material were purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year. c. The company worked 32,500 direct labor-hours during the year at a cost of $7.80 per hour. d. Overhead cost is applied to products on the basis of direct labor-hours. Data relating to overhead costs follow: Denominator activity level (direct labor-hours) 25,500 hours / 1.5 hours perunit Bucigeted fixed Overhead costs - (from the master budget). ............. $153,000 Actual fixed overhead costs ................ . 148,000 Actual variable overhead costs .... 68,250 17,000 units Chapter 8 Analysis: c) Prepare Level 3 analysis for the plant manager Flexible Cost Flexible Budget Formula Budget Variance Manufacturing costs: Variable mfg. OH $3/unit Fixed Mfg. OH cost $9/unit Actual Costs a) Prepare Level 1 analysis for the plant manager (responsibility accounting) Static Cost Static Budget Actual Formula Budget Variance Costs Units produced & sold Manufacturing costs: Variable Mfg. Costs $29/unit Fixed Mfg. OH cost $9/unit Total Mfg. costs Chapter 7 &8 Analysis conclusions d) Discuss the results for the plant manager & is he responsible? Do on the back in a memo ACC 321 Chapters 7 & 8: Handout Problem (Budgeting) "Il certainly is nice to see that small variance on the income state- ment after all the trouble we've had lately in controlling manufacturing costs," said Linda White, vice president of Molina Company. "The $2,250 variance reported last period is well below the 3% limit we have set for variances. We need to congratulate everybody on a job well done. The income statement to which Ms. White was referring is shown below: Flexible Budget Variance Actual costs 20,000 Units Budgeted $1,200,000 Variance $ Actual Sales ........................ $1,200,000 Less cost of goods sold (standard cost, $38 per unit)... 762,250 Gross margin.... 437,750 Less operating expenses! Selling expenses.... . . 200,000 Administrative expenses ...... . 150,000. Total operating expenses ......... 350,000 Net income . $ 87,750 b) Prepare Level 2 analysis for the plant manager (responsibility accounting) Sales Cost Static Volume Flexible Formula Budget Variance Budget Units produced & sold Manufacturing costs: Variable Direct Mat. $14/unit Variable Direct labor $12/unit Variable mfg. OH $3/unit Fixed Mfg. OH cost $9/unit Total Mfg. costs 760,000 440,000 2.250 (2,250) 200,000 150,000 350,000 90,000 $ $(2.250) The company produces and sells a single product. The standard cost card for the product follows: Standard Cost Card-Per Unit Direct materials, 4 yards at $3.50....... $14 Direct labor, 1.5 hours at 58 ..... Variable overhead, 1.5 hours at $2... 3 Fixed overhead, 1.5 hours at $6........ 9 Standard cost per unit... Chapter 7 Analysis: c) Prepare Level 3 analysis for the plant manager Flexible Cost Flexible Budget Formula Budget Variance Manufacturing costs: Variable Direct Mat. $14/unit Variable Direct labor $12/unit Actual Costs 12 $38 The following additional information is available for the year just completed: a. The company manufactured and sold 20,000 units of product during the year. b. A total of 78,000 yards of material were purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year. c. The company worked 32,500 direct labor-hours during the year at a cost of $7.80 per hour. d. Overhead cost is applied to products on the basis of direct labor-hours. Data relating to overhead costs follow: Denominator activity level (direct labor-hours) 25,500 hours / 1.5 hours perunit Bucigeted fixed Overhead costs - (from the master budget). ............. $153,000 Actual fixed overhead costs ................ . 148,000 Actual variable overhead costs .... 68,250 17,000 units Chapter 8 Analysis: c) Prepare Level 3 analysis for the plant manager Flexible Cost Flexible Budget Formula Budget Variance Manufacturing costs: Variable mfg. OH $3/unit Fixed Mfg. OH cost $9/unit Actual Costs a) Prepare Level 1 analysis for the plant manager (responsibility accounting) Static Cost Static Budget Actual Formula Budget Variance Costs Units produced & sold Manufacturing costs: Variable Mfg. Costs $29/unit Fixed Mfg. OH cost $9/unit Total Mfg. costs Chapter 7 &8 Analysis conclusions d) Discuss the results for the plant manager & is he responsible? Do on the back in a memo