Cornerstone Exercise 12.4 (Algorithmic) Activity-Based Flexible Budgeting

Foy Company has a welding activity and wants to develop a flexible budget formula for the activity. The following resources are used by the activity:

• Four welding units, with a lease cost of $13,000 per year per unit
• Six welding employees each paid a salary of $60,000 per year (A total of 9,000 welding hours are supplied by the six workers.)
• Welding supplies: $300 per job
• Welding hours: 3 hours used per job

During the year, the activity operated at 90 percent of capacity and incurred the following actual activity and resource costs.

• Lease cost: $52,000
• Salaries: $378,000
• Parts and supplies: $804,000

Required:

1. Prepare a flexible budget formula for the welding activity using welding hours as the driver.

Welding cost

=

$

+

$ X

Foy Company

Activity-Based Performance Report

Activity

Actual Cost

Budgeted Cost (90% level)

Budget Variance

Variance

Welding:

Fixed cost

$

Correct 15 of Item 2

$

Correct 16 of Item 2

$

Correct 17 of Item 2

Correct 18 of Item 2

Variable cost

Correct 20 of Item 2

Correct 21 of Item 2

Correct 22 of Item 2

What if welders were hired through outsourcing and paid $30 per hour (the welding equipment is provided by Foy)? Repeat Requirement 1 for the outsourcing case.

Welding cost

=

$

+

$ X

Novo, Inc., wants to develop an activity flexible budget for the activity of moving materials. Novo uses eight forklifts to move materials from receiving to stores. The forklifts are also used to move materials from stores to the production area. The forklifts are obtained through an operating lease that costs $18,000 per year per forklift. Novo employs 25 forklift operators who receive an average salary of $50,000 per year, including benefits. Each move requires the use of a crate. The crates are used to store the parts and are emptied only when used in production. Crates are disposed of after one cycle (two moves), where a cycle is defined as a move from receiving to stores to production. Each crate costs $1.80. Fuel for a forklift costs $3.60 per gallon. A gallon of gas is used every 20 moves. Forklifts can make three moves per hour and are available for 280 days per year, 24 hours per day (the remaining time is downtime for various reasons). Each operator works 40 hours per week and 50 weeks per year.

1. Prepare a flexible budget for the activity of moving materials, using the number of cycles as the activity driver. If required, round your answers to the nearest cent.

Novo, Inc. Flexible Budget

Formula

Formula

Resource

Fixed

Variable

• Crates
• Fuel
• Lease
• Salaries

Correct 10 of Item 1

$

Correct 11 of Item 1

• Crates
• Fuel
• Lease
• Salaries

Correct 12 of Item 1

Correct 13 of Item 1

• Crates
• Fuel
• Lease
• Salaries

Correct 14 of Item 1

$

Correct 15 of Item 1

• Crates
• Fuel
• Lease
• Salaries

Correct 16 of Item 1

Correct 17 of Item 1

Total

$

Correct 19 of Item 1 2. Calculate the activity capacity for moving materials.

Cornerstone Exercise 12.1 (Algorithmic) Value- and Non-Value-Added Cost Reporting

Cicleta Manufacturing has four activities: receiving materials, assembly, expediting products, and storing goods. Receiving and assembly are necessary activities; expediting and storing goods are unnecessary. The following data pertain to the four activities for the year ending 2014 (actual price per unit of the activity driver is assumed to be equal to the standard price):

Activity	Activity Driver	SQ	AQ	SP
Receiving	Receiving orders	10,400	22,500	$18
Assembly	Labor hours	93,000	112,500	13
Expediting	Orders expedited	0	7,500	43
Storing	Number of units	0	15,000	6

Required:1. Prepare a cost report for the year ending 2014 that shows value-added costs, non-value-added costs, and total costs for each activity. If an amount is zero, enter "0".h

$