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You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door -2-2 http:// ezto.m hedu opening device. The president has asked that you review the company's costing system and \"do what you can to help us get better control of our manufacturing overhead costs.\" You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March: Utilities Maintenance Supplies Indirect labor Depreciation Cost Formula $16,800 plus $0.20 per machine-hour $38,700 plus $1.20 per machine-hour $0.90 per machine-hour $94,700 plus $2.00 per machine-hour $68,100 Actual Cost in March $ $ $ $ $ 23,200 60,100 20,500 141,600 69,800 During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March. Required: 1. Complete the report showing the activity variances for March. (Indicate the effect of each variance by picking "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance) in the far right block. Input all amounts as positive values.) FAB Corporation Activity Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total 2. Complete the report showing the spending variances for March. (Indicate the effect of each variance by picking "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance) in the far right block. Input all amounts as positive values.) FAB Corporation Spending Variances For the Month Ended March 31 Utilities Maintenance Supplies Indirect labor Depreciation Total A number of costs are listed below that may be relevant in decisions faced by the management of Svahn, AB, a Swedish manufacturer of sailing yachts: Question 3 relates to Case 1, and question 4 relates to Case 2. Consider the two cases independently. 3. The company chronically has no idle capacity and the old Model B100 machine is the company's constraint. Management is considering purchasing a Model B300 machine to use in addition to the company's present Model B100 machine. The old Model B100 machine will continue to be used to capacity as before, with the new Model B300 machine being used to expand production. This will increase the company's production and sales. The increase in volume will be large enough to require increases in fixed selling expenses and in general administrative overhead, but not in the fixed manufacturing overhead. 4. The old Model B100 machine is not the company's constraint, but management is considering replacing it with a new Model B300 machine because of the potential savings in direct materials with the new machine. The Model B100 machine would be sold. This change will have no effect on production or sales, other than some savings in direct materials costs due to less waste. Required: Indicate whether each item is (relevant or not relevant) in the following situations. A B C D E F G H I J K L Item Sales Revenue Direct materials Direct labor Variable manufacturing overhead Depreciation- Model B100 machine Book value- Model B100 machine Disposal value- Model B100 machine Market value- Model B300 machine (cost) Fixed manufacturing overhead (general) Variable selling expense Fixed selling expense General administrative overhead Case 1 Case 2 Andretti Company has a single product called a Dak. The company normally produces and sells 89,000 Daks each year at a selling price of $44 per unit. The company's unit costs at this level of activity are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit $ 8.50 10.00 2.80 9.00 ($801,000 total) 1.70 5.50 ($489,500 total) $ 37.50 Required: 5-a. Assume that Andretti Company has sufficient capacity to produce 124,600 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 40% above the present 89,000 units each year if it were willing to increase the fixed selling expenses by $120,000. Calculate the incremental net operating income. (Round all dollar amounts to 2 decimal places.) Increased sales in units Contribution margin per unit Incremental contribution margin = (Increased sales in units X Contribution margin per unit) Less added fixed selling expense Incremental net operating income = (Incremental contribution margin - Less added fixed selling expense) 5-b. Would the increased fixed selling expenses be justified? Yes No 6. Assume again that Andretti Company has sufficient capacity to produce 124,600 Daks each year. A customer in a foreign market wants to purchase 35,600 Daks. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $28,480. The only selling costs that would be associated with the order would be $1.90 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.) Variable manufacture cost per unit Import duties per unit Permits and licenses Skipping cost per unit Break-even price per unit 7. The company has 600 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.) Relevant unit cost Per unit 8. Due to a strike in its supplier's plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 30% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? (Enter losses/reductions with a minus sign. Round all calculations (intermediate and final) to whole numbers. Round unit calculations to whole numbers.) Contribution margin lost Fixed costs Fixed manufacture overhead cost Fixed selling cost Net disadvantage of closing the plant XXXX XXXX XXXX XXXX XXXX XXXX 9.An outside manufacturer has offered to produce Daks and ship them directly to Andretti's customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Variable manufacturing cost Fixed manufacturing overhead cost Variable selling expense Total cost avoided (Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into filet mignon and the New York cut. If the T-bone steaks are sold as initially cut, the company figures that a 1-pound T-bone steak would yield the following profit: Selling price ($2.00 per pound) Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product $2.00 Profit per pound $0.65 1.35 As mentioned above, instead of being sold as initially cut, the T-bone steaks could be further processed into filet mignon and New York cut steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce filet mignon and one 8-ounce New York cut; the remaining ounces are waste. The cost of processing the T-bone steaks into these cuts is $0.18 per pound. The filet mignon can be sold for $4.40 per pound, and the New York cut can be sold for $3.80 per pound. Required: 10. Determine the profit per pound from processing the T-bone steaks into filet mignon and New York cut steaks. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Sales from further processing: Sales price of one filet mignon Sales price of one New York cut Total revenue from further processing= (Sales price of one filet mignon + Sales price of one New York cut) 11.Would you recommend that the T-bone steaks be sold as initially cut or processed further? Less sales revenue from one T-bone steak Incremental revenue from further processing= (Total revenue from further processing- Less sales T-bone steaks should be processed further. revenue from one T-bone steak) T-bone steaks should be Less cost of further processing sold as initially cut. Profit (loss) per pound from further processing= (Incremental revenue from further processing- Less cost of further processing) XXXXXXX