P 68: Coating Department

The coating department of a parts manufacturing department coats various parts with an antirust, zinc-based material. The parts to be processed are loaded into baskets; the baskets are passed through a coating machine that dips the parts into the zinc solution. The machine then heats the parts to ensure that the coating bonds properly. All parts being coated are assigned a cost for the coating department based on the number of hours the parts spend in the coating machine. Prior to the beginning of the year, cost categories are accumulated by department (including the coating department). These cost categories are classified as either fixed or variable and then a flexible budget for the department is constructed. Given an estimate of machine hours for the next year, the coating departments projected cost per machine hour is computed.

Here are data for the last three operating years. Expected coating machine hours for 2017 are 16,000 hours.

COATING DEPARTMENT

Operating Data

	2014	2015	2016
Machine hours	12,500	8,400	15,200
Coating materials	$ 51,375	$ 34,440	$ 62,624
Engineering support	27,962	34,295	31,300
Maintenance	35,850	35,930	36,200
Occupancy costs (square footage)	27,502	28,904	27,105
Operator labor	115,750	78,372	147,288
Supervision	46,500	47,430	49,327
Utilities	12,875	8,820	16,112
Total costs	$317,814	$268,191	$369,956

Required:

1. Estimate the coating departments flexible budget for 2017. Explicitly state and justify the assumptions used in deriving your estimates.

2. Calculate the coating departments cost per machine hour for 2017.