Your information:

1. Your company produces a fancy bag of potato chips . 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)

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

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

1. Annual overhead information is given in Table 3. Overhead is allocated based direct labor hours.Estimated annual direct labor hours are 15,000.Calculate a predetermined OH rate (round to two decimal places if needed).Use this rate when you need to apply OH.

1. 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).

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

1. Cost-Volume-Profit (CVP) Relationships

a.Selling Price:You sell a bag of chips for $7.55

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 ($150,000)

ii.Conservative Profit ($25,000)

iii.Average Profit ($78,900)

1. 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 year 2 are expected to be 20,000 bags of chips. Beginning finished inventory for Q1 is 0. Use table 7 to complete the production budget.

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

1. Actuals are in for quarter two.You sold 20% more units than you budgeted for, but price per unit was only $7.45.

a.Calculate revenue

b.Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost.All Q1 ending finished goods inventory was sold in Q1.All Q2 sales came from what was produced in Q2.

1. Actual potato usage for quarter two was 123,700 pounds at a price of $0.48 per pound. Actual equivalent units of production (bags of chips) completed through the first process (where the potatoes are added) was 23,500.Calculate the direct materials variances for the potatoes (price, usage, and total) and indicate if these variances are favorable or unfavorable.

1. Actual direct labor hours for the quarter were 4,780 at an average rate of $12.00 per hour.For actual production you expected to use 4,700 direct labor hours.Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable.

1. 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 custom bag (packaging) that will cost $0.40 instead of the normal $0.30 per bag.The request is for 1,000 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).

1. 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

5 lbs

$0.50

$2.50

seasoning

1 ounce

0.05

0.05

packaging

1 bag

0.30

0.30

Total cost

$2.85

Table 2:Direct Labor

Job description

Hours per bag

Rate

Total cost

Potato washer & peeler

0.1

$11.70

$1.1700

Slicer & Fryer

0.05

11.70

0.5850

Packager

0.05

11.70

0.5850

Total cost

$2.34

Table 3:YEARLY OVERHEAD COSTS

Cost description

Amount

Indirect material

$7,620

Indirect labor

60,600

Machine Maintenance

5,230

Electricity

7,350

Depreciation

7,500

Quality testing

9,200

Total

$97,500

Predetermined OH rate:

Table 4 - Actual Overhead cost for the last two months

Month 1

Month 2

Indirect Material

$635

$635

Indirect Labor

5,050

5,050

Machine Maintenance

390

465

Electricity

550

675

Depreciation

625

625

Quality testing

730

855

Machine Hours *

1,100

1,350

*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 DescriptionVARIABLE Cost per unitFIXED 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

1,300 (40% complete)

$6,799

$65

507.80

169

Transferred In

24,000

$120,713

End WIP

2,100 (30% complete)

Added during Qtr 2:

Direct Materials -- $8569.50

Direct Labor - 1,200 hrs @ $12.00 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

$1,905

Indirect Labor

$15,150

Machine Maintenance

$1,546

Electricity

$3,150

Depreciation

$1,875

Quality Testing

$3,240

Amount of applied OH:

Amount of actual OH:

Under or Over- Applied Amount:

New COGS amount:

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 is available to discuss the project. Try to get help from classmates first. Your professor will only provide limited individual help, but will monitor the discussion board to make sure advice is on the right path 4. You can also print, hand write the answers, and submit a scanned copy 1 Your information: 1. Your company produces a fancy bag of potato chips . 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 15,000. 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 $7.55 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 ($150,000) ii. Conservative Profit ($25,000) iii. Average Profit ($78,900) 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 year 2 are expected to be 20,000 bags of chips. Beginning finished inventory for Q1 is 0. Use table 7 to complete the production budget. 9. Running quarter two -- 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 two. You sold 20% more units than you budgeted for, but price per unit was only $7.45. a. b. Calculate revenue Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost. All Q1 ending finished goods inventory was sold in Q1. All Q2 sales came from what was produced in Q2. 11. Actual potato usage for quarter two was 123,700 pounds at a price of $0.48 per pound. Actual equivalent units of production (bags of chips) completed through the first process (where the potatoes are added) was 23,500. 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 4,780 at an average rate of $12.00 per hour. For actual production you expected to use 4,700 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 custom bag (packaging) that will cost $0.40 instead of the normal $0.30 per bag. The request is for 1,000 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 Quantity Total per Material per unit Cost unit potatoes 5 lbs $0.50 $2.50 seasoning 1 ounce 0.05 0.05 packaging 1 bag 0.30 0.30 Total cost $2.85 Table 2: Direct Labor Job description Potato washer & peeler Slicer & Fryer Packager Hours per bag Total cost Rate 0.1 0.05 0.05 $11.70 $1.1700 11.70 0.5850 11.70 0.5850 Total cost $2.34 Table 3: YEARLY OVERHEAD COSTS Cost description Indirect material Indirect labor Machine Maintenance Electricity Depreciation Quality testing Total Amount $7,620 60,600 5,230 7,350 7,500 9,200 $97,500 Predetermined OH rate: 4 Table 4 - Actual Overhead cost for the last two months Month 1 Month 2 Indirect Material $635 $635 Indirect Labor 5,050 5,050 Machine Maintenance 390 465 Electricity 550 675 Depreciation 625 625 Quality testing 730 855 Machine Hours * 1,100 1,350 *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 Units 1,300 (40% complete) 24,000 Transferredin $6,799 Cost Direct Materials $65 Direct Labor Overhead 507.80 169 $120,713 2,100 (30% complete) Added during Qtr 2: Direct Materials -- $8569.50 Direct Labor - 1,200 hrs @ $12.00 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: Table 12 - Direct Labor Variances 10 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 Indirect Labor Machine Maintenance Electricity Depreciation Quality Testing $1,905 $15,150 $1,546 $3,150 $1,875 $3,240 Amount of applied OH: Amount of actual OH: Under or Over- Applied Amount: New COGS amount: 12