Overview: Classifying a companys costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost-volume-profit analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers.

For Milestone Two, you will analyze the budget and actual costs using the MDE Manufacturing Budget (Tables I, II, III, IV). Determine where variances occurred and why. Submit the Student Workbook with Tabs 3 and 4 completed with your budgets/variances and a 12 page Word document that discusses the implications of your findings on MDEs financial considerations. Explain which aspects of MDEs budgeting process are in need of improvement and justify your response using your calculations. Address all critical elements listed below in Section II. Use Tabs 5 and 6 of the Student Workbook for your budget and variance calculations.

I. Sales and Manufacturing Expenses: Budget and Actual (2014)

You will use this table to complete Milestones One and Two.

	Budget ($)	Actual ($)
Sales	1,050,000	991,700
Expenses
Materials Cedar	225,000	248,160
Materials Plastic	37,500	37,741
Factory Worker Labor	300,000	332,760
Materials Indirect	3,000	2,585
Factory Depreciation	78,000	78,000
Factory Utilities	12,000	12,000
Factory Maintenance and Repairs	5,000	4,500
Shipping ($2.25/each)	112,500	105,750
Sales Commissions ($2.00/unit sold)	100,000	94,000
Office Rent	12,000	12,000
Advertising	20,000	20,000
Liability insurance	5,000	5,000
Office Depreciation	1,000	1,000
Office Salaries	48,000	48,000
Total Expenses	959,000	1,001,496

II. Contribution Margin: Static Budget and Actual Results (2014)

You will use this table to complete Milestone Two.

	Actual Results	Static Budget Amount
Units Sold	47,000	50,000
Revenues ($)	991,700	1,050,000
Manufacturing Costs ($)
Variable	621,246	565,500
Fixed	94,500	95,000
Gross Margin	275,954	389,500

III. Standard Variable Manufacturing Costs (2014)

You will use this table to complete Milestone Two.

	Static Budget Costs	Standard Input
Direct Materials: Cedar	225,000	3.0 ft/unit
Direct Materials: Plastic	37,500	1.0 ft/unit
Direct Manufacturing Labor	300,000	0.5 hrs/unit
Variable Manufacturing Overhead	3,000	0.3 ft/unit

IV. Actual Variable Manufacturing Costs (2014)

You will use this table to complete Milestone Two.

	Actual Costs	Actual Input
Direct Materials: Cedar	248,160	3.2 ft/unit
Direct Materials: Plastic	37,741	1.1 ft/unit
Direct Manufacturing: Labor ($)	332,760	11.80/hr
Variable Manufacturing Overhead	2,585	0.2 ft/unit

Milestone Two, Part I

Use Tables I through IV on the MDE Manufacturing Budget to complete your calculations.

Refer to Exhibit 7-2 on page 253 of the text

Budget Model

From Flexible Budget Calculations Sheet

Actual

Flexible Budget Variance

Favorable/ Unfavorable

Flexible Budget

Sales Volume Variance

Favorable/ Unfavorable

Static Budget

Units Sold

47,000

47,000

50,000

Revenues

$991,700

$4,700

Favorable

$987,000

($63,000)

Unfavorable

$1,050,000

Variable Costs

DM-Plastic

DM-Cedar

Milestone Two, Part II
Use the variance supporting calculation tab to complete your calculations.
					Price Variance		Efficiency Variance
	Direct Materials - Cedar
	Direct Materials - Plastic
	Direct Labor
					Spending Variance		Efficiency Variance
	Variable Manufacturing Overhead

Direct Manuf. Labor

Variable Manuf. Overhead

Total Variable Costs

Fixed Manuf. Overhead

Total Costs

Gross Margin

		Budgeted Unit	Actual Volume	Flexible Budget
		Amounts		Amount
Revenues		$ 21.00	47,000	$987,000
Variable Costs
DM-Plastic		4.50	47,000	211,500
DM-Cedar
Direct Manuf. Labor
Variable Manuf. Overhead
Total Variable Manufacturing Costs
Fixed Manufacturing Overhead
Total Manufacturing Costs
Gross Margin

Use Tables III and IV on the MDE Manufacturing Budget to complete your calculations.
				Development of Price and Efficiency Variances - Calculations
					Actual Ounces per Unit	Actual Units	Actual Ounces Used	Actual Cost	Actual Cost per Unit
			DM-Plastic
			DM-Cedar
					Actual Labor Cost per Hour	Actual Labor Costs	Actual Labor Hours	Actual Units	Actual Labor Hours per Unit
			Direct Manuf. Labor
		Actual Costs Incurred (Actual Input Qty. Actual Price)			Actual Input Qty. Budgeted Price			Flexible Budget (Budgeted Input Qty. Allowed for Actual Output Budgeted Price)
		Actual Units	Actual Feet per Unit	Actual Price per Ounce	Actual Units	Actual Feet per Unit	Budgeted Cost per Ounce	Actual Units	Budgeted Feet per Unit	Budgeted Cost per Ounce
	Direct Material Plastic
			$ -			$ -			$ -
				$ -			$ -
				Price Variance			Efficiency Variance
	Direct Material Cedar
			$ -			$ -			$ -
				$ -			$ -
				Price Variance			Efficiency Variance
		Actual Units	Actual Hours per Unit	Actual Cost per Hour	Actual Units	Actual Hours per Unit	Budgeted Cost per Hour	Actual Units	Budgeted Hours per Unit	Budgeted Cost per Hour
	Direct Manufacturing Labor
			$ -			$ -			$ -
				$ -			$ -
				Price Variance			Efficiency Variance
			Actual Costs		Actual Input Qty. Budgeted Price			Flexible Budget (Budgeted Input Qty. Allowed for Actual Output Budgeted Price)
			Actual Costs		Actual Units	Actual Feet per Unit	Budgeted Cost per Foot	Actual Units	Budgeted Feet per Unit	Budgeted Cost per Foot
	Variable manufacturing overhead
			$ -			$ -			$ -
				$ -			$ -
				Spending Variance			Efficiency Variance