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I have attached two exercise below please let me know if you can help I have trouble answering them 5. Watson Company manufactures and sells
I have attached two exercise below please let me know if you can help I have trouble answering them
5. Watson Company manufactures and sells a single product called a JPeg. Operating at capacity the company can produce and sell 30,000 JPegs per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit $15 8 3 9 4 6 $45 Total $450,000 240,000 90,000 270,000 120,000 180,000 $1,350,000 The JPegs normally sell for $50 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 25,000 through 30,000 Rets per year. Required: a) Assume that due to a recession, Watson Company expects to sell only 25,000 JPegs through regular channels next year. A large retail chain has offered to purchase 5,000 Jpegs, if Watson is willing to accept a 20% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Watson Company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost $10,000. Watson Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted. b) Refer to the original data. Assume again that the Watson Company expects to sell only 25,000 JPegs through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 JPegs. The Army would pay a fixed fee of $2.00 per JPeg and would reimburse Watson Company for all costs of production (variable and fixed) associated with the units. Because the Army would pick up the JPegs with its own trucks, there would be no variable selling expenses associated with this order. If Watson Company accepts the order, by how much will profits increase or decrease for the year? 6. Great news! Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well, \"said the president of Stanley Company. \"Our $12,260 overall manufacturing cost variance is only one-half of one percent of the standard $2,160,000 standard cost of products sold during the year. That is well within the 3 % parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.\" The company produces and sells a single product. A standard cost card for the product follows: Standard Cost Card - Per Unit of Product Direct materials, 2 feet at $9.00 .................. $18.00 Direct labor, 1.5 hours at $15 ..................... 22.50 Variable overhead, 1.5 hours at $3.00 ............ 4.50 Fixed overhead, 1.5 hours at $6 .................. 9.00 Standard cost per unit..................... $ 54.00 The following additional information is available for the year just completed: The company manufactured 45,000 units of product during the year. A total of 95,000 feet of material was purchased during the year at a cost of $9.20 per foot. 88,000 feet of this material was used to manufacture the 45,000 units. There were no beginning inventory for the year. The company worked 69,000 direct labor-hours during the year at a cost of $16.50 per hour. Overhead is applied to products based on direct labor-hours. Data relating to manufacturing overhead costs follows: Denominator activity level (direct labor-hours) ... 60,000 Budget fixed overhead costs (from the overhead flexible budget) ..................$360,000 Actual variable overhead costs incurred .............. 175,000 Actual fixed overhead costs incurred ................. 340,000 Required: a) b) c) d) e) Compute the direct materials price and quantity variances for the year. Compute the direct labor price and quantity variances for the year. Compute the variable overhead price and quantity variances for the year. Compute the fixed overhead spending and production volume variances for the year. Total the variances you have computed, and compare the net with the $12,260 mentioned by the president. Do you agree that bonuses should be given to everyone for good cost control during the year? Explain. 5. Watson Company manufactures and sells a single product called a JPeg. Operating at capacity the company can produce and sell 30,000 JPegs per year. Costs associated with this level of production and sales are given below: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense Total cost Unit $15 8 3 9 4 6 $45 Total $450,000 240,000 90,000 270,000 120,000 180,000 $1,350,000 The JPegs normally sell for $50 each. Fixed manufacturing overhead is constant at $270,000 per year within the range of 25,000 through 30,000 Rets per year. Required: a) Assume that due to a recession, Watson Company expects to sell only 25,000 JPegs through regular channels next year. A large retail chain has offered to purchase 5,000 Jpegs, if Watson is willing to accept a 20% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Watson Company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost $10,000. Watson Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted. Answer: The company expected sells = 25,000 Jpegs. Purchased Jpegs = 5,000 Machine purchase = 5,000 units = $10,000 If 20% discount is accepted therefore and there is no sales commission and then allowing the purchase of the machine which would cost $10,000 This will reduce the sale by a large percentage since there is no assurance if the machine will attribute other retailers to purchase the additional units hence if this order is accepted it will lead to reduction in the profits by a larger percentage. b) Refer to the original data. Assume again that the Watson Company expects to sell only 25,000 JPegs through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 JPegs. The Army would pay a fixed fee of $2.00 per JPeg and would reimburse Watson Company for all costs of production (variable and fixed) associated with the units. Because the Army would pick up the JPegs with its own trucks, there would be no variable selling expenses associated with this order. If Watson Company accepts the order, by how much will profits increase or decrease for the year? Answer Variable cost = $15 +$8 +$3 +$4 = $30 per unit Watson should accept. Incremental revenue from special order (5,000 x $50 = $250,000 Incremental cost to fill special order (5,000 x $30) = $150,000 Therefore the profits would increase by $100,000 in the course of the year. Answers to question six. a. Compute the direct materials price and quantity variances for the year. 1) Materials price variance = (Actual price - Standard Price) *Actual Quantity Materials price variance = (3.75-3.50)*70200 Materials price variance = $ 17550 Unfavorable 2). Materials usage/quantity variance = (Actual Quantity Used- Standard Quantity)Standard Price Materials usage/quantity variance = (70200 - 4*18000)*3.50 Materials usage/quantity variance = $ 6300 Favorable b. Compute the direct labor rate and efficiency variances for the year. 1) Labor rate variance = (Actual Rate-Standard Rate)*Actual Hour Labor rate variance = (7.80-8)*29250 Labor rate variance = $ 5850 Favorable 2) Labor efficiency variance = (Actual Hour-Standard Hour )Standard Rate Labor efficiency variance = (29250-18000*1.5)*8 Labor efficiency variance = 18000 Unfavorable c. Compute the variable overhead rate and efficiency variances for the year. 1) Variable Overhead rate variance = (Actual Rate*Actual Hour -Standard Rate*Actual Hour ) Variable Overhead rate variance = (61425 - 2*29250) Variable Overhead rate variance = $ 2925 Unfavorable 2) Variable Overhead efficiency variance =(Actual Hour-Standard Hour )Standard Rate Variable Overhead efficiency variance = (29250-27000)*2 Variable Overhead efficiency variance = 4500 Unfavorable d. Compute the fixed manufacturing overhead budget and volume variances for the year. 1) Fixed manufacturing overhead budget Variance = Actual Fixed Overhead Budgeted Fixed Overhead Fixed manufacturing overhead budget Variance = (133200-135000) Fixed manufacturing overhead budget Variance = $ 1800 Favorable 2) Fixed manufacturing overhead volume variances = ( Budgeted Fixed Overhead Standard Hour Allowed * Standard Rate) Fixed manufacturing overhead volume variances = (135000- 27000*6) Fixed manufacturing overhead volume variances = $ 27000 Favorable e. I do not agree that bonuses should be given to everyone for the good cost in the year this is because the total variances are not favorable hence we will grow a big loss if bonuses are given
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