ACC207-COST ACCOUNTING MILESTONE TWO

Overview: Classifying a company?s costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost-volume-profit analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers.

For Milestone Two, you will analyze the budget and actual costs using the MDE Manufacturing Budget (Tables I, II, III, IV). Determine where variances occurred and why. Submit the Student Workbook with Tabs 3 and 4 completed with your budgets/variances and a 1?2 page Word document that discusses the implications of your findings on MDE?s financial considerations. Explain which aspects of MDE?s budgeting process are in need of improvement and justify your response using your calculations. Address all critical elements listed below in Section II. Use Tabs 5 and 6 of the Student Workbook for your budget and variance calculations.

II. Prepare and Perform

a) What are your fixed costs? Segregate them in the budget model.

b) Determine how variable costs change as activity measures change. How can this information be applied?

c) Create the budget model, ensuring fixed costs are hard coded into the model (variable costs are stated as a percentage of the relevant activity

measures or as a cost per unit of activity measure).

d) Add actual activity measures to the model. Make sure all information is added accurately.

e) Add the flexible budget calculations to the budget model. Make sure all information is accurate.

f) Compare the flexible budget to the actual expenses. What does this inform? Be sure to discuss the following variances:

i. Static budget variance, including sales volume and flexible budget variances

ii. Price and efficiency variances for direct materials and direct labor

iii. Spending and efficiency variances for variable manufacturing overhead

g) Determine the aspects of the budgeting process that are in need of improvement. Justify your response.

h) Interpret what budget variances represent. Should all variances be investigated?

Guidelines for Submission: Your paper must be submitted using the Student Workbook to present your budgets and variances and a 1?2 page Microsoft Word document with double spacing, 12-point Times New Roman font, and one-inch margins to explain your findings.

\fMilestone One, Part I Product Costs Period Costs Milestone One, Part II Use Table I on the MDE Manufacturing Budget to complete your calculations. 50,000 Units Totals Budget Sales Price per Unit Variable Costs Materials - Cedar Materials - Plastic Factory Worker Labor Materials - Indirect Shipping ($2.25/ea) Sales Commissions ($2/unit sold) Variable Cost per Unit Contribution Margin Fixed Costs Factory Depreciation Factory Utilities Factory Maintenance and Repairs Office Rent Advertising Liability Insurance Office Depreciation Office Salaries Total Fixed Costs Using Budgeted Amounts Breakeven Point - Using Actual Amounts + 10,000 profit Using actual amounts + 10,000 profit 4.50 225,000 0.75 37,500 3,000 When you do this calculatio Totals Actual When you do this calculation you get $4.50 for Cedar and $0.75 Plastic 2,585 Breakeven Point - Units at Current Sales Price New Contribution Margin Current Variable Costs New Sales Price Milestone Two, Part I Use Tables I through IV on the MDE Manufacturing Budget to complete your calculations. Refer to Exhibit 7-2 on page 253 of the text Budget Model Units Sold Revenues Variable Costs DM-Plastic DM-Cedar Direct Manuf. Labor Variable Manuf. Overhead Total Variable Costs Fixed Manuf. Overhead Total Costs Gross Margin Actual 47,000 $991,700 Flexible Budget Variance $4,700 Favorable/ Unfavorable Favorable From Flexible Budget Calculations Sheet Flexible Budget 47,000 $987,000 Sales Volume Variance ($63,000) Favorable/ Unfavorable Unfavorable Static Budget 50,000 $1,050,000 Milestone Two, Part II Use the variance supporting calculation tab to complete your calculations. Price Variance Direct Materials - Cedar Direct Materials - Plastic Direct Labor Spending Variance Variable Manufacturing Overhead Efficiency Variance Efficiency Variance Revenues Variable Costs DM-Plastic DM-Cedar Direct Manuf. Labor Variable Manuf. Overhead Total Variable Manufacturing Costs Fixed Manufacturing Overhead Total Manufacturing Costs Gross Margin Budgeted Unit Amounts $ 21.00 $0.75 $4.50 Actual Volume 47,000 47,000 Flexible Budget Amount $987,000 211,500 Use Tables III and IV on the MDE Manufacturing Budget to complete your calculations. Development of Price and Efficiency Variances - Calculatio Actual Feet per Unit DM-Plastic DM-Cedar Actual Labor Cost per Hour Direct Manuf. Labor Actual Costs Incurred (Actual Input Qty. Actual Price) Actual Feet per Unit Actual Units Actual Input Qty. Budgeted Pric Actual Price per Ounce Actual Units Direct Material Plastic $ $ Price Variance $ Price Variance Direct Material Cedar $ Actual Units - Actual Hours per Unit Actual Cost per Hour Actual Units Direct Manufacturing Labor $ $ Actual Costs Price Variance Actual Input Qty. Budgeted Pric Actual Costs Actual Units Variable manufacturing overhead $ $ Spending Variance e and Efficiency Variances - Calculations Actual Feet Used Actual Units Actual Labor Costs Actual Labor Hours Actual Cost Actual Units $ $ Actual Hours per Unit Budgeted Feet per Unit $ - $ - Efficiency Variance Budgeted Cost per Hour Actual Units - Budgeted Hours Budgeted Cost per per Unit Hour $ $ Budgeted Cost per Ounce Efficiency Variance $ $ Actual Units $ Actual Labor Hours per Unit Flexible Budget (Budgeted Input Qty. Allowed for Actual Output Budgeted Price) Actual Input Qty. Budgeted Price Actual Feet per Budgeted Cost Unit per Ounce Actual Cost per Unit - Efficiency Variance Actual Input Qty. Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output Budgeted Price) Actual Feet per Budgeted Cost Unit per Foot $ Actual Units - Budgeted Feet per Unit $ $ Efficiency Variance - Budgeted Cost per Foot I believe that all of the yellow highlighted cells should read "per Unit" and not "per Ounce"