UTEASE CORPORATION Utease Corporation has several production plants nationwide. A newly opened plant in Dubuque produces and sells coe product. The plant is treated, for responsibility acoounting purposes, as a proft center. The unit standard costs for a production unit, with orerhead applied based on direct labor hours, are as follows. Assume this is the first year of operations for the Dubuque plant. During the year, the company had the folloning activity: In addition, all over- or underapplied orerhead and all product cost variances are adjusted to cost of goods sold. Instructions a. Prepare a production budget for the coming year based on the available standards, expected sales, and desired ending imventories. b. Prepare a budgeted responsibility inoome statement for the Dubuque plant for the coming year. c. Find the direct labor variances. Indicate if they are favorable or unfavorable and why they would be considered as such. Page 1122 d. Find the direct materials variances (materials price variance and quantity variance). e. Find the total over- or underapplied (both flxed and variable) overhead. Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead? f. Calculate the actual plant operating proft for the year. g. Use a flexible budget to explain the difference between the budgeted operating proft and the actual operating proft for the Dubuque plant for its first year of operations. What part of the difference do you believe is the plant manager's responsibility? h. Assuma 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 Dubuque plant is $8,050,000, 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. 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 $600,000 that will generate incremental earnings of $108,000 per year, would the manager undertake the project? Why or why not? What other evaluation tools could Utease use for its plants that might be better? j. The chief financial officer of Utease Corporation wants to include a charge in each investment center's income statement for corporatewide administrative expenses. Should the Bellingham plant manager's annual bonus be based on plant ROI after deducting the corporatevide administrative fee? Why or why not? Page 1123