Your information: 1. Your company produces a basic potato chip. There are three main processes used in the chips. The first process washes and peels the potatoes. The second process slices and fries the potatoes. The third process seasons and packages the chips. The potato chips are sold in 12 oz bags (1 bag is a unit) 2. Information on the direct materials is listed in table 1. Consider this information the standard. 3. Direct labor information given in Table 2. Consider this information the standard. 4. Annual overhead information is given in Table 3. Overhead is allocated based on direct labor hours. Estimated annual direct labor hours are 12,500. Calculate a predetermined OH rate (round to two decimal places if needed). Use this rate when you need to apply OH. 5. Table 4 gives you the information for the last two months on the overhead cost. Use this information to determine the fixed and variable portions of the cost. (You will need this information to complete Table 5). Machine hours have been determined as the best cost driver for separating mixed cost into their fixed and variable portions. It takes approximately 12 minutes of total machine time for each bag of chips (or 1/5 a machine hour per bag of chips). 6. Table 5 is where you will list all your production cost, separated into their fixed and variable components. 7. Cost-Volume-Profit (CVP) Relationships a. Selling Price: You sell a bag of chips for $4.00 b. Breakeven point: Calculate the breakeven point. Be sure to include the fixed component of mixed cost in your fixed costs and the variable component in the variable cost. Show your breakeven in Sales units and in Sales Dollars c. Profit Planning: Determine the number of units you must sell to make an annual pre-tax profit using 3 assumptions concerning your net income (profit), both in sales units and sales dollars. i. Aggressive Profit ($100,000) ii. Conservative Profit ($25,000) iii. Average Profit ($60,450) 8. Budgeting: a. Create a sales budget using the information for earning an average profit for the year. You will break the budget down into the four quarters for the year. (Sales tend to be consistent each quarter, you can only sale a whole unit so round-up if necessary) Use table 6 to complete the sales budget. b. Create a production budget for each quarter of the year (keep it in quarters; you do not need to break it down by month). You desire to keep 10% of next quarter?s sales in ending inventory. Sales for Qtr 1 the following year are expected to be 30,000 bags of chips. There is not any beginning finished goods inventory for quarter one. Use table 7 to complete the production budget. 9. Running quarter one -- Weighted-average process costing. Table 8 presents the information for the packaging department. Complete the questions under table 8. 10. Actuals are in for quarter one. You sold 25% more units than you budgeted for, but price per unit was only $3.80. a. Calculate revenue b. Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost 11. Actual potato usage for quarter one was 68,000 pounds at a price of $0.45 per pound. Actual equivalent units of production (bags of chips) completed through the fist process (where the potatoes are added) was 29,520. Calculate the direct materials variances for the potatoes (price, usage, and total) and indicate if these variances are favorable or unfavorable. 12. Actual direct labor hours for the quarter were 4,830 at an average rate of $8.10 per hour. For actual production you expected to use 4,200 direct labor hours. Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable. 13. For next quarter you have been asked to supply a special order of you potato chips. The non-profit organization requesting this order would like a special bag that will cost $0.20 instead of the normal $0.10 per bag. The request is for 10,000 bags of chips. Based on your projections you have the capacity for this order. What is the minimum price per unit and total price you would be willing to accept on this order? (You cannot afford to take this offer at a loss, but you are fine with accepting it at cost). 14. Determine over- or under-applied overhead and close to cost of goods sold. Actual OH cost are given in table 14 (look at #12 for actual DL hours used to apply OH). Determine the new cost of goods sold amount. Table 1: Direct Materials Material Quantity Cost Total per unit per unit Potatoes 2 lbs $0.48 $0.96 Seasoning 0.1 ounces $0.50 $0.05 Packaging 1 bag $0.10 $0.10 1/12 box $0.48 $0.04 TOTAL $1.15 Table 2: Direct Labor Hours Per Bag Job Description of chips Rate Total Cost Potato Washer & Peeler .05 $8.00 $0.40 Slicer & Fryer .04 $8.00 $0.32 Packager .05 $8.00 $0.40 Total 0.14 $1.12 Table 3: YEARLY OVERHEAD COSTS Cost Description Total Cost Indirect Materials $6,000 Indirect Labor 60,010 Machine Maintenance 4,040 Electricity 3,440 Depreciation 4,680 Quality Testing 10,160 TOTAL $88,330 Predetermined OH rate: Table 4 ? Actual Overhead cost for the last two months Month 1 Month 2 Indirect Material $500 $500 Indirect Labor $5000.83 $5000.83 Machine Maintenance $250 $290 Electricity $200 $240 Depreciation $390 $390 Quality Testing $630 $730 Machine Hours* 1000 1200 *12 minutes of machine time per bag of chips (1/5 hour = 1 unit) Complete any calculations here: Table 5: Variable and Fixed Costs COSTS Description VARIABLE Cost per unit FIXED Cost per Year TOTAL If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column. CVP Calculations: Table 6 ? Sales Budget Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total Sales Forecast Price Sales Budget Table 7 ? Production Budget Qtr 1 Qtr 2 Qtr 3 Qtr 4 Sales Des End Inv Needs Beg Inv Production Process Costing ? Packaging Department Direct materials are added 70% at the beginning of the process and the remaining 30% are added when the chips are 50% complete with the packaging process. Direct labor and overhead are added evenly throughout the process. Table 8 ? Unit and cost information Cost Physical Units Transferred-in Direct Materials Direct Labor Overhead Beg WIP 1,000 (40% complete) $2,450 $110.40 $165 $141.44 Transferred In 30,000 $73,500 End WIP 2,200 (30% complete) Added during Qtr 1: Direct Materials -- $4,835.02 Direct Labor ? 1,580 hrs @ $8.10 per hour Overhead ? OH is applied based on predetermined OH rate and actual DL hours 1. Determine the number of units completed during quarter 1. 2. Compute the equivalent units using the weighted average method 3. Compute the cost per equivalent unit using the weighted average method 4. Compute the cost of goods transferred to finished goods inventory 5. Compute the ending balance in WIP, Packaging Table 10 ? Actual Results (calculate revenue and COGS) Units sold Sales Price Revenue Units sold Cost per unit COGS Table 11 ? DM Variances (potatoes only) Price Variance Usage Variance Total Variance Calculations: Table 12 ? Direct Labor Variances Rate Variance Efficiency Variance Total Variance Calculations: #13 Calculations (Minimum price on special order) Table 14 ? Actual OH cost for Quarter 1 Description Cost Indirect Materials $1,750 Indirect Labor $15,000 Machine Maintenance $1,416.20 Electricity $1,235.75 Depreciation $1,050 Quality Testing $4,615 Amount of applied OH: Amount of actual OH: Under or Over- Applied Amount: New COGS amount:

Final Project Due: December 5, 2014 Objectives: 1. Apply accounting manufacturing concepts to an actual product to solidify the learning process. 2. Learn how all the numbers fit together. 3. Develop decision making analysis techniques. Manufacturing Questions Instructions: 1. This project should stand by itself. Include the questions with your submission--not just the answers. Identify all numbers. Points will be deducted if I can't understand what you are answering. 2. You may use Excel to complete tables and/or answer questions. Just make sure you label your work and turn the Excel file in. 3. You may discuss this project with classmates. A discussion board will be set up for this project. Try to get help from classmates first. Your professor will only provide limited individual help. 1 Your information: 1. Your company produces a basic potato chip. There are three main processes used in the chips. The first process washes and peels the potatoes. The second process slices and fries the potatoes. The third process seasons and packages the chips. The potato chips are sold in 12 oz bags (1 bag is a unit) 2. Information on the direct materials is listed in table 1. Consider this information the standard. 3. Direct labor information given in Table 2. Consider this information the standard. 4. Annual overhead information is given in Table 3. Overhead is allocated based direct labor hours. Estimated annual direct labor hours are 12,500. Calculate a predetermined OH rate (round to two decimal places if needed). Use this rate when you need to apply OH. 5. Table 4 gives you the information for the last two months on the overhead cost. Use this information to determine the fixed and variable portions of the cost. (You will need this information to complete Table 5). Machine hours have been determined as the best cost driver for separating mixed cost into their fixed and variable portions. It takes approximately 12 minutes of total machine time for each bag of chips (or 1/5 a machine hour per bag of chips). 6. Table 5 is where you will list all your production cost, separated into their fixed and variable components. 7. Cost-Volume-Profit (CVP) Relationships a. Selling Price: You sell a bag of chips for $4.00 b. Breakeven point: Calculate the breakeven point. Be sure to include the fixed component of mixed cost in your fixed costs and the variable component in the variable cost. Show your breakeven in Sales units and in Sales Dollars c. Profit Planning: Determine the number of units you must sell to make an annual pretax profit using 3 assumptions concerning your net income (profit), both in sales units and sales dollars. i. Aggressive Profit ($100,000) ii. Conservative Profit ($25,000) iii. Average Profit ($60,430) 2 8. Budgeting: a. Create a sales budget using the information for earning an average profit for the year. You will break the budget down into the four quarters for the year. (Sales tend to be consistent each quarter, you can only sale a whole unit so round-up if necessary) Use table 6 to complete the sales budget. b. Create a production budget for each quarter of the year (keep it in quarters; you do not need to break it down by month). You desire to keep 10% of next quarter's sales in ending inventory. Sales for Qtr 1 the following year are expected to be 30,000 bags of chips. There is not any beginning finished goods inventory for quarter one. Use table 7 to complete the production budget. 9. Running quarter one -- Weighted-average process costing. Table 8 presents the information for the packaging department. Complete the questions under table 8. 10. Actuals are in for quarter one. You sold 25% more units than you budgeted for, but price per unit was only $3.80. a. b. Calculate revenue Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost 11. Actual potato usage for quarter one was 68,000 pounds at a price of $0.45 per pound. Actual equivalent units of production (bags of chips) completed through the fist process (where the potatoes are added) was 29,520. Calculate the direct materials variances for the potatoes (price, usage, and total) and indicate if these variances are favorable or unfavorable. 12. Actual direct labor hours for the quarter were 4,830 at an average rate of $8.10 per hour. For actual production you expected to use 4,200 direct labor hours. Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable. 13. For next quarter you have been asked to supply a special order of you potato chips. The non-profit organization requesting this order would like a special bag that will cost $0.20 instead of the normal $0.10 per bag. The request is for 10,000 bags of chips. Based on your projections you have the capacity for this order. What is the minimum price per unit and total price you would be willing to accept on this order? (You cannot afford to take this offer at a loss, but you are fine with accepting it at cost). 14. Determine over- or under-applied overhead and close to cost of goods sold. Actual OH cost are given in table 14 (look at #12 for actual DL hours used to apply OH). Determine the new cost of goods sold amount. 3 Table 1: Direct Materials Material Potatoes Seasoning Packaging Quantity Cost per unit Total 1.5 lbs 0.1 ounces 1 bag 1/12 box $0.75 $0.05 $0.10 $0.04 $0.50 $0.50 $0.10 $0.48 TOTAL per unit $0.94 Table 2: Direct Labor Job Description Potato Washer & Peeler Hours Per Bag of chips .1 Slicer & Fryer Packager .04 .05 Total Rate $8.00 Total Cost $0.80 $8.00 $8.00 $0.32 $0.40 0.14 $1.52 Table 3: YEARLY OVERHEAD COSTS Cost Description Total Cost Indirect Materials $6,000 Indirect Labor 60,010 Machine Maintenance 4,040 Electricity 3,440 Depreciation 4,680 Quality Testing 10,160 TOTAL $88,330 Predetermined OH rate: 4 Table 4 - Actual Overhead cost for the last two months Indirect Material Indirect Labor Machine Maintenance Electricity Depreciation Quality Testing Month 1 $500 $5000.83 $250 $200 $390 $630 Month 2 $500 $5000.83 $290 $240 $390 $730 Machine Hours* 1000 1200 *12 minutes of machine time per bag of chips (1/5 hour = 1 unit) Complete any calculations here: 5 Table 5: Variable and Fixed Costs COSTS Description VARIABLE Cost per unit FIXED Cost per Year TOTAL If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column. CVP Calculations: 6 Table 6 - Sales Budget Qtr 1 Qtr 2 Table 7 - Production Budget Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 3 Total Qtr 4 7 Process Costing - Packaging Department Direct materials are added 70% at the beginning of the process and the remaining 30% are added when the chips are 50% complete with the packaging process. Direct labor and overhead are added evenly throughout the process. Table 8 - Unit and cost information Beg WIP Transferred In End WIP Physical TransferredUnits in 1,000 (40% $5,550 complete) 30,000 $73,500 Cost Direct Direct Materials Labor $110.40 $165 Overhead $141.44 2,200 (30% complete) Added during Qtr 1: Direct Materials -- $4,835.02 Direct Labor - 1,580 hrs @ $8.10 per hour Overhead - OH is applied based on predetermined OH rate and actual DL hours 1. Determine the number of units completed during quarter 1. 2. Compute the equivalent units using the weighted average method 8 3. Compute the cost per equivalent unit using the weighted average method 4. Compute the cost of goods transferred to finished goods inventory 5. Compute the ending balance in WIP, Packaging 9 Table 10 - Actual Results (calculate revenue and COGS) Units sold Sales Price Revenue Units sold Cost per unit COGS Table 11 - DM Variances (potatoes only) Price Variance Usage Variance Total Variance Calculations: 10 Table 12 - Direct Labor Variances Rate Variance Efficiency Variance Total Variance Calculations: #13 Calculations (Minimum price on special order) 11 Table 14 - Actual OH cost for Quarter 1 Description Cost Indirect Materials $1,750 Indirect Labor $15,000 Machine Maintenance $1,416.20 Electricity $1,235.75 Depreciation $1,050 Quality Testing $4,615 Amount of applied OH: Amount of actual OH: Under or Over- Applied Amount: New COGS amount: 12