Chapter 11 Part 1

Jason, Inc. produces leather purses. Jason has developed a static budget for the first quarter, based on 20,000 direct labor hours. During the quarter, the actual activity was 22,000 direct labor hours. Data for the first quarter are summarized as follows:

	Static budget (20,000 hours)	Actual costs (22,000 hours)
Direct materials cost	$ 80,000	$ 87,000
Direct labor cost	160,000	174,000
Building rental (fixed)	48,000	50,000
Total	$288,000	$311,000

Required:

1. What is the flexible budget amount for the three costs for the first quarter?

2. What is the flexible budget variance for the three costs for the first quarter?

Part 2

Favor Company budgeted the following amounts:

Variable costs of production:
	Direct materials	6 pounds @ $1.25 per pound
	Direct labor	0.75 hours @ $16.00 per hour
	Variable overhead	0.75 hours @ $2.65 per hour

Fixed overhead:
	Materials handling	$9,000
	Depreciation	$2,300

Required:

Prepare a flexible budget for 1,500 units, 1,800 units and 2,100 units.

Chapter 13 Part 1

Tyler Company has been approached by a new customer with an offer to purchase 6,000 units of its product KR200 at a price of $11 each. The existing sales would not be affected by this special order. Tyler normally produces 40,000 units but plans to produce and sell 30,000 in the coming year. The normal sales price is $18 per unit. Unit cost information is as follows:

Direct materials	$4.00
Direct labor	$2.75
Variable overhead	$1.50
Fixed overhead	$3.25
Total	$11.50

If Tyler accepts the order, no fixed manufacturing activities will be affected because there is sufficient excess capacity.

Required:

1. By how much will profit increase or decrease if the order is accepted?

2. Should Tyler accept the special order?

Part 2

Junior Company currently buys 30,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Junior Company that a 20% increase will take effect next year. Junior has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):

Direct materials	$16
Direct labor	12
Variable overhead	12
Fixed overhead	10
Total	$50

If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally.

Required:

Should Junior Company buy the part externally or make it internally (show computations)?