Utease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows:

Manufacturing costs (per unit based on expected activity of 12,000 units or 19,200 direct labor hours):

Direct materials (2.1 pounds at $20) $ 42

Direct labor (1.6 hours at $60) 96

Variable overhead (1.6 hours at $20) 32

Fixed overhead (1.6 hours at $30) 48

Standard cost per unit $ 218

Budgeted selling and administrative costs:

Variable $ 5 per unit

Fixed $ 1,000,000

Expected sales activity: 8,000 units at $400 per unit

Desired ending inventories: 10% of sales

Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity:

Units produced 11,000

Units sold 9,500

Unit selling price $ 395

Direct labor hours worked 17,100

Direct labor costs $ 1,043,100

Direct materials purchased 27,100 pounds

Direct material costs $ 542,000

Direct material used 27,100 pounds

Actual fixed overhead $ 280,000

Actual variable overhead $ 284,000

Actual selling and administrative costs $ 1,340,000

In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.

a.

Prepare a production budget for the coming year based on the available standards, expected sales, and desired ending inventories. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Units

$

Planned Production of Finished Goods $

b.

Prepare a budgeted responsibility income statement for the Bellingham plant for the coming year. (Input all amounts as positive values. Omit the "$" sign in your response.)

BELLINGHAM PLANT

Budgeted Income Statement

Year Ending December 31, 20__

$

$

Operating Expenses:

$

Total Operating Expense $

$

c.

Find the direct labor variances. Indicate if they are favorable or unfavorable and why they would be considered as such. (Indicate the effect of each variance by selecting Favorable, Unfavorable, and "None" for no effect. Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

Direct labor variances

Labor efficiency variance $

Labor rate variance $

d.

Find the direct materials variances (materials price variance and quantity variance). (Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of each variance by selecting Favorable, Unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Enter your answers in dollars not in pounds. Omit the "$" sign in your response.)

Direct material variances

Material quantity variance $

Material price variance $

Find the total over- or underapplied (both fixed and variable) overhead. Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead? (Omit the "$" sign in your response.)

overhead $

e-2

Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead?

Smaller expense

Larger expense

f.

Calculate the actual plant operating profit for the year. (Omit the "$" sign in your response.)

Operating profit $

g.

Prepare a flexible budget for the Bellingham plant for its first year of operations. (Input all amounts as positive values. Omit the "$" sign in your response.)

$

Flexible budget variance $

Master budget variance $

h.

Assume Utease Corporation is planning to change its evaluation of business operations in all plants from the profit center format to the investment center format. If the average invested capital at the Bellingham plant is $8,970,000, compute the return on investment (ROI) for the first year of operations. Use the DuPont method of evaluation to compute the return on sales (ROS) and capital turnover (CT) for the plant. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

ROI %

ROS %

Capital Turnover %

i

Assume that under the investment center evaluation plan the plant manager will be awarded a bonus based on ROI. If the manager has the opportunity in the coming year to invest in new equipment for $500,000 that will generate incremental earnings of $80,000 per year, would the manager undertake the project?

No

Yes