Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your information: Your company produces a basic potato chip. There are three main processes used in the chips. The first process washes and peels the

Your information:

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)

Information on the direct materials is listed in table 1. Consider this information the standard.

Direct labor information given in Table 2. Consider this information the standard.

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.

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).

Table 5 is where you will list all your production cost, separated into their fixed and variable components.

Cost-Volume-Profit (CVP) Relationships

Selling Price: You sell a bag of chips for $5.14

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

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.

Aggressive Profit ($100,000)

Conservative Profit ($25,000)

Average Profit ($60,425)

Budgeting:

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.

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 quarters 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.

Running quarter one -- Weighted-average process costing. Table 8 presents the information for the packaging department. Complete the questions under table 8.

Actuals are in for quarter one. You sold 25% more units than you budgeted for, but price per unit was only $5.00.

Calculate revenue

Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost

Actual potato usage for quarter one was 69,500 pounds at a price of $0.54 per pound. Actual equivalent units of production (bags of chips) completed through the first 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.

Actual direct labor hours for the quarter were 5,120 at an average rate of $12.05 per hour. For actual production you expected to use 4,800 direct labor hours. Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable.

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 $0.28 instead of the normal $0.25 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).

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 per unit

Cost

Total per unit

potatoes

1.5 lbs

$0.60

$0.90

seasoning

1 ounce

0.05

0.05

packaging

1 bag

0.25

0.25

1/12 box

0.6

0.05

Total cost

$1.25

Table 2: Direct Labor

Job description

Hours per bag

Rate

Total cost

Potato washer & peeler

0.1

$11.50

$1.15

Slicer & Fryer

0.04

11.50

0.46

Packager

0.06

11.50

0.69

Total cost

$2.30

Table 3: YEARLY OVERHEAD COSTS

Cost description

Amount

Indirect material

$6,500

Indirect labor

61,450

Machine Maintenance

4,120

Electricity

3,570

Depreciation

6,340

Quality testing

10,520

Total

92,500

Predetermined OH rate:

Table 4 Actual Overhead cost for the last two months

Month 1

Month 2

Indirect Material (F)

$530

$530

Indirect Labor (F)

5,250

5,250

Machine Maintenance

370

445

Electricity

180

225

Depreciation (F)

625

625

Quality testing

510

600

Machine Hours *

1,200

1,500

*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

Table 7 Production Budget

Qtr 1

Qtr 2

Qtr 3

Qtr 4

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)

$6,500

$112.40

$1,948.85

$1,788.35

Transferred In

30,000

$63,250

End WIP

2,200 (30% complete)

Added during Qtr 1:

Direct Materials -- $5045.40

Direct Labor 1,580 hrs @ $12.05 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

$2,190

Indirect Labor

$18,250

Machine Maintenance

$1,825

Electricity

$1,720

Depreciation

$1,585

Quality Testing

$5,940

Amount of applied OH:

Amount of actual OH:

Under or Over- Applied Amount:

New COGS amount:

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Social Media A Governance And Risk Guide

Authors: Peter R. Scott, J. Mike Jacka

1st Edition

1118061756, 978-1118061756

More Books

Students also viewed these Accounting questions