Question 5.1

For the second quarter of the following year Cloaks Company has projected sales and production in units as follows:

Jan Feb Mar

Sales 49,000. 51,000 56,000

Production 53,000 48,000 49,000

Cash-related production costs are budgeted at $7 per unit produced. Of these production costs, 35% are paid in the month in which they are incurred and the balance in the next month. $95,000 per month will account for Selling and administrative expenses. On January 31, the accounts payable balance totals $185,000, which will be paid in February.

All units are sold on account for $13 each. Cash collections from sales are budgeted at 55% in the month of sale, 25% in the month following the month of sale, and the remaining 20% in the second month following the month of sale. On January 1 accounts receivable totaled $500,000 ($90,000 from November's sales and the remaining from December).

Submission Instructions:

1.Make a schedule for each month showing budgeted cash disbursements for Cloaks Company.

2.Make a schedule for each month showing budgeted cash receipts for Cloaks Company.

Question 5.2

Orville Company's standard and actual costs per unit are provided below for the most recent period. During this time period 400 units were actually produced.

Standard Actual

Materials:

Standard: 2 metres at $1.50 per m. $3.00

Actual: 2.1 metres at $1.60 per m. $3.36

Direct labour:

Standard: 1.5 hrs. at $6.00 per hr. 9.00

Actual: 1.4 hrs. at $6.50 per hr. 9.10

Variable overhead:

Standard: 1.5 hrs. at $3.40 per hr. 5.10

Actual: 1.4 hrs. at $3.10 per hr. 4.34

Total unit cost $17.19 $16.80

For simplicity, assume there was no inventory of materials at the beginning or end of the period.

Submission Instructions:

Given the information above, compute the following variances. Also indicate if the variances are favorable or unfavorable.

1.Materials price variance

2.Materials quantity variance

3.Direct labour rate variance

4.Direct labour efficiency variance

5.Variable overhead spending variance

6.Variable overhead efficiency variance

Question 3

PEI Lighthouse Company makes 20,000 units per year of a specialty light used by lighthouses all around the world. The unit product cost of this part is computed as follows:

Direct Materials $24.70

Direct Labour $16.30

Variable Manufacturing Overhead $2.30

Fixed Manufacturing Overhead $13.40

Unit Product Cost $56.70

An outside supplier has offered to sell the company the part that PEI Lighthouse Company needs for $51.80 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $44,000 per year.

If the part were purchased from the outside supplier, all of the direct labour cost of the part would be avoided. However, $5.10 of the fixed manufacturing overhead cost that is being applied to the part would continue, even if the part was purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Submission Instructions:

1.How much of the unit product cost of $56.70 is relevant in the decision of whether to make or buy the part?

2.What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?

3.What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 20,000 units required each year?

Question 5.4

Cavendish Cheese Company makes three products within their single facility. Data concerning these products follow:

Products

A B C

Selling price per unit $67.90 $57.70 $43.90

Direct materials $12.10 $10.30 $8.60

Direct labour $14.10 $8.00 $6.80

Variable manufacturing overhead $2.60 $2.20 $1.80

Variable selling cost per unit $2.50 $2.20 $2.50

Mixing minutes per unit 2.70 3.30 4.70

Monthly demand in units 1,000 3,000 3,000

The mixing machines are potentially a constraint in the production facility. A total of 25,800 minutes are available per month on these machines.

Direct labour is a variable cost in this company.

Submission Instructions:

1.How many minutes of mixing machine time would be required to satisfy the demand for all three products?

2.How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income?

3.Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity?

Question 5

When analyzing the total variable overhead cost variance into both spending and efficiency variances, it is often assumed that direct labour hours is the sole cost driver.

Submission Instructions:

1.Explain if direct labour costs could ever be a better cost driver of variable overhead costs than direct labour hours.