Murphy Manufacturing Corporation makes and sells one product, cleverly named Product X. Product X normally sells for $100 per unit and is only sold in whole units!

Production for April 2010 is expected to equal sales at a level of 32,000 units, which represents Murphys normal capacity. The company expects inventory levels to remain unchanged for the month. (Production equals sales).

The following budget monthly estimates for manufacturing, selling and administrative expenses are available for normal capacity of 32,000 monthly units:

		estimate costs and expenses
		fixed		variable
		per month		per unit
cost of goods manufactured and sold:
direct material				$25
direct labor				$8.50
factory overhead:
depreciation-plant&equip		$35,000
other factory overhead		?		?
selling expenses:
sales salaries&commissions		$125,000		12.5
advertising		$115,500
miscellaneous sales expense		$9,000		2
administrative expenses:
office and officer salaries		$74,200		7.65
supplies		$4,800		1
miscellaneous admin. Exp.		2,000		1.5
(1a) based on established standards of .5 labor hour per unit at $17 per hour

Other factory overhead

Other factory overhead is a mixed cost. The following information was gathered for the previous 12 months, regarding the other factory overhead costs:

other factory overhead			unit produced		actual cost
monthly cost for prior 12months
april	2009		45,000		$302,500
may	2009		18,000		$195,000
june	2009		20,500		$202,000
july	2009		26,000		$187,000
august	2009		27,100		$217,000
sept	2009		21,150		$184,000
oct	2009		14,000		$163,000
nov	2009		26,300		$235,800
dec	2009		18,670		$164,020
jan	2010		18,750		$182,070
feb	2010		27,650		$270,680
march	2010		30,000		$248,000
			293,120		$2,551,570

Required:

1. Using the high-low method, determine the fixed and variable portion of the other factory overhead cost.

2. Assume for the remainder of this problem that the variable portion of other manufacturing overhead is $4.50 per unit, while the fixed portion is estimated at $100,000 per month. Total MONTHLY estimated fixed costs are (including other factory overhead)?

3. What is the contribution margin per unit?

4.What is the MONTHLY total cost formula for Murphy?

5.What is Murphys ANNUAL estimated profit or loss?

6.As part of their master budgeting process at the start of the year, Murphy prepared an annual static budget for revenues and costs, based upon an average monthly production of 32,000 units per month. The static budget for production costs FOR THE YEAR would be:

Direct Materials $___________ Direct Labor $____________ Overhead $___________

7.The company wishes to use NORMAL COSTING to apply overhead to production, on the basis of direct labor hours. The predetermined overhead rate (POHR) would be:

8. The budgeted production cost per unit would be:

9. Determine the MONTHLY breakeven point for Murphy in terms of units and sales dollars.

10. If Murphys sales were to be 3,000 units higher than expected, by how much would pre-tax income increase?

11. Based on their budgeted information, Murphys contribution margin ratio is? (round to 4 decimal places)

12. If Murphys sales decreased by $14,000, the effect on profits would be?

$_______________________________

13. Murphy is interested in knowing how far sales could drop below the expected MONTHLY levels without causing the company to lose money. Using Murphys estimate, how far could MONTHLY sales drop in both units AND dollars, and still keep the company from losing money? (what will be the margin of safety?)

14. Assume for this question only (and all of its parts) that actual ANNUAL sales for Murphy totaled 396,000 units.

Total revenue would be:

$________________________

Total costs would be:

$________________________

Net income before taxes would be:

$______________________

For 396,000 units, the FLEXIBLE BUDGET would reflect the following:

Direct materials $_____________ Direct labor $____________ Overhead $_________

Assume that in order to make the 396,000 units referred to above, Murphy actually required 210,000 direct labor hours, at an average wage rate of $17.50 per hour at a total cost of $3,675,000.

Murphys direct-labor flexible budget variance is:

$___________________________

Murphys direct-labor rate variance is:

$_______________________________

Murphys direct-labor efficiency variance is:

$_____________________________

15. Assume that Murphy has excess capacity in a given month, and that they have received an order from a foreign customer for 8,000 units for a total price of $600,000. On this order, Murphy will not have to pay sales commissions which amount to an average of $6 per unit. The prospective customer is requesting that product X be done with a different type of final coating. The coating that is being requested will save Murphy approximately 16% on direct materials and $1.50 per unit in direct labor. By how much would Murphys income be increased (or decreased) if they accept this order?

16. Assume the same facts as in 8) above, except that Murphy is now operating AT capacity and that this new foreign order will displace other regularly scheduled work. By how much will Murphys income increase (or decrease) if they take the order at the price currently offered ($600,000)?

17. What total price per unit must they charge for this order and still leave profits unchanged?

18. The physical inventory count at Murphy Corporation determined that there were 22,000 units of Product X in inventory. What will be the amount of inventory shown on Murphys Balance Sheet as of 4/30/10 using absorption (or full) costing method required by GAAP?

19. For internal purposes, Murphy uses variable costing (or direct costing). Under variable costing, only the variable production costs are considered as product costs. Fixed manufacturing costs (fixed overhead) are NOT considered product costs and are NOT inventoried instead, they are treated as period costs and charged to expense in the period incurred. Assuming that 22,000 units are in ending inventory, under direct costing, Murphys inventory on April 30, 2010 would be:

EXTRA CREDIT:

20. Assume for the remainder of this problem that actual sales for the month of April for Murphy were 30,000 units totaling $2,910,000. The total sales budget variance is:

$_______________

21. How much of the sales variance from 12) above is attributable to price and volume, respectively?

Price $_____________________ Volume $__________________