PLEASE COMPLETE REQUIREMENT 3

Background: Baxter Company is a well-known manufacturer of outdoor goods. They recently started production on the Whack-O, a multi-purpose survival tool, which they plan add to their line of camping products. The costs to manufacture and market the Whack-O are $8.50 per unit plus $92,000 of fixed costs. Baxter Company believes that they can easily sell the Whack-O for $18.50 per unit.

The CEO of Baxter Company asks the Sales and Production Managers to prepare a flexible Budget for each of the three levels of activity: the unit sales at break even, the unit sales to achieve a $25,000 profit and the unit sales to achieve a $40,000 profit. (These unit sales figures come from questions 1 and 2 above).

NUMBER OF UNITS TO ATTAIN BREAK EVEN 9200 UNITS

NUMBER OF UNITS TO ATTAIN A 25000 PROFIT PER MONTH IS 11700 UNITS

NUMBER OF UNITS TO ATTAIN A 40000 PROFIT PER MONTH IS 13200 UNITS

The following standard costs were used to prepare the flexible budget: Selling Price: $18.50 Variable Costs (per unit) Direct Materials: The standard materials quantity and cost for each unit is 3 pounds per unit at a cost of $.50 per pound. Direct Labor: The standard activity and wage rate is 20 minutes per product at a rate of $12.00 per DL hour. Indirect Materials: $.10 Utilities for Factory $.15 Indirect Labor for Factory $.70 Factory Supplies $.15 Variable Administrative Salaries $0.75 Variable Sales Commissions $1.15 Fixed Costs (per month) Factory Supervisor Salaries $40,000 Depreciation on Factory Equipment $15,500 Property Taxes (Factory) $4,500 Insurance (Factory) $3,200 Maintenance (Factory) $1,800 Fixed Sales Salaries $ 10,000 Depreciation on Sales Equipment $12,000 Advertising $5,000

Requirement 3 (25 points) a. Calculate the standard cost per unit for direct materials and standard rate per unit for direct labor. (The formulas are given above next to the Direct Materials and Direct Labor items. The standard costs that you calculate are the amounts you will use for your flexible budget for each of these costs). b. Prepare a flexible production budget including Revenues, Total Variable Costs, Total Fixed Costs, Total Costs and Net Income, for the three levels of activity (number of units to break even, number of units to achieve a $25,000 profit, number of units to achieve a $40,000 profit).