Comprehensive Problem 6

Utease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows:

Manufacturing costs (per unit based on expected activity of 17,000 units or 18,700 direct labor hours):
Direct materials (1.8 pounds at $10)	$	18
Direct labor (1.1 hours at $60)		66
Variable overhead (1.1 hours at $10)		11
Fixed overhead (1.1 hours at $20)		22
Standard cost per unit	$	117
Budgeted selling and administrative costs:
Variable	$	4	per unit
Fixed	$	1,500,000

Expected sales activity: 13,000 units at $350 per unit

Desired ending inventories: 12% of sales

Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity:

Units produced		16,000
Units sold		14,500
Unit selling price	$	345
Direct labor hours worked		17,100
Direct labor costs	$	1,043,100
Direct materials purchased		32,800	pounds
Direct material costs	$	328,000
Direct material used		32,800	pounds
Actual fixed overhead	$	1,000,000
Actual variable overhead	$	87,000
Actual selling and administrative costs	$	1,652,000

In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.

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Section BreakComprehensive Problem 6

1.

value: 12.00 points

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Comprehensive Problem 6 Part a

a.	Prepare a production budget for the coming year based on the available standards, expected sales, and desired ending inventories. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

	Units
(Click to select)Planned production of finished goodsCost of goods soldUnits budgeted to be available for saleBudgeted unit salesBeginning inventory units	$
(Click to select)Add: Beginning inventory unitsLess: Desired ending inventory of finished goodsLess: Beginning inventory unitsBudgeted unit salesAdd: Desired ending inventory of finished goods
(Click to select)Less: Beginning inventory unitsUnits budgeted to be available for saleBudgeted unit salesAdd: Beginning inventory unitsDesired ending inventory of finished goods
(Click to select)Budgeted unit salesAdd: Desired ending inventory of finished goodsAdd: Beginning inventory unitsLess: Beginning inventory unitsLess: Desired ending inventory of finished goods
Planned Production of Finished Goods	$

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WorksheetComprehensive Problem 6 Part aDifficulty: Hard

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2.

value: 21.00 points

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Comprehensive Problem 6 Part b

b.	Prepare a budgeted responsibility income statement for the Bellingham plant for the coming year. (Input all amounts as positive values. Omit the "$" sign in your response.)

BELLINGHAM PLANT Budgeted Income Statement Year Ending December 31, 20__
(Click to select)Planned productionDesired ending inventorySales revenueCashBudgeted unit sales	$
(Click to select)Cost of goods soldSales returns & allowancesCashBudgeted unit salesDesired inventory
(Click to select)Gross profitGross loss	$
Operating Expenses:
(Click to select)Variable selling and administrative expenseFixed selling and administrative expenseSalaries expenseSales return & allowancesOperating expense	$
(Click to select)Variable selling and administrative expenseFixed selling and administrative expenseOperating expenseSales return & allowancesSalaries expense
Total Operating Expense	$
(Click to select)Operating incomeOperating loss	$

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WorksheetComprehensive Problem 6 Part bDifficulty: Hard

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3.

value: 16.00 points

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Comprehensive Problem 6 Part c

c.

Find the direct labor variances. Indicate if they are favorable or unfavorable and why they would be considered as such. (Indicate the effect of each variance by selecting Favorable, Unfavorable, and "None" for no effect. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

Direct labor variances
Labor efficiency variance	$	(Click to select)NoneUnfavorableFavourable
Labor rate variance	$	(Click to select)FavourableUnfavorableNone

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WorksheetComprehensive Problem 6 Part cDifficulty: Hard

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4.

value: 8.00 points

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Comprehensive Problem 6 Part d

d.

Find the direct materials variances (materials price variance and quantity variance). (Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting Favorable, Unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Enter your answers in dollars not in pounds. Omit the "$" sign in your response.)

Direct material variances
Material quantity variance	$	(Click to select)NoneUnfavorableFavourable
Material price variance	$	(Click to select)NoneUnfavorableFavourable

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WorksheetComprehensive Problem 6 Part dDifficulty: Hard

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5.

value: 8.00 points

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Comprehensive Problem 6 Part e

e-1	Find the total over- or underapplied (both fixed and variable) overhead. Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead? (Omit the "$" sign in your response.)

(Click to select)Under appliedOver applied overhead

$

e-2

Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead?

	Smaller expense
	Larger expense

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WorksheetComprehensive Problem 6 Part eDifficulty: Hard

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6.

value: 8.00 points

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Comprehensive Problem 6 Part f

f.	Calculate the actual plant operating profit for the year. (Omit the "$" sign in your response.)

Operating profit

$

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WorksheetComprehensive Problem 6 Part fDifficulty: Hard

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7.

value: 11.00 points

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Comprehensive Problem 6 Part g

g.	Prepare a flexible budget for the Bellingham plant for its first year of operations. (Input all amounts as positive values. Omit the "$" sign in your response.)

(Click to select)Flexible budget non-operating profitFlexible budget operating profitOperating lossOperating incomeCost of goods sold	$
(Click to select)Operating lossAdd: Actual operating profitLess: Actual operating profitCost of goods soldOperating income
Flexible budget variance	$
(Click to select)Cost of goods soldBudgeted non-operating profitBudgeted operating profitOperating incomeOperating loss
(Click to select)Less: Actual operating profitAdd: Actual operating profitOperating lossCost of goods soldOperating income
Master budget variance	$

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WorksheetComprehensive Problem 6 Part gDifficulty: Hard

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8.

value: 12.00 points

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Comprehensive Problem 6 Part h

h.

Assume Utease Corporation is planning to change its evaluation of business operations in all plants from the profit center format to the investment center format. If the average invested capital at the Bellingham plant is $9,070,000, compute the return on investment (ROI) for the first year of operations. Use the DuPont method of evaluation to compute the return on sales (ROS) and capital turnover (CT) for the plant. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

ROI	%
ROS	%
Capital Turnover	%

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WorksheetComprehensive Problem 6 Part hDifficulty: Hard

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9.

value: 4.00 points

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Comprehensive Problem 6 Part i

i

Assume that under the investment center evaluation plan the plant manager will be awarded a bonus based on ROI. If the manager has the opportunity in the coming year to invest in new equipment for $500,000 that will generate incremental earnings of $75,000 per year, would the manager undertake the project?

No

Yes

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Multiple ChoiceComprehensive Problem 6 Part i

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