Domestic The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses forbudgeting purposes-the number of courses and the total number of students. For example, the school might run two courses in amonth and have a total of 50 students enrolled in those two courses. Data concerning the company's cost formulas appear below:FixedCost per Cost per Cost perInstructor wagesClassroom suppliesUtilitiesCampus rentInsuranceAdministrative expensesMonthCourse$ 3,080Student$ 260$ 870$ 4,200$ 1,890$ 3,270$ 130$ 15$ 4For example, administrative expenses should be $3,270 per month plus $15 per course plus $4 per student. The company's salesshould average $800 per student.The company planned to run three courses with a total of 45 students; however, it actually ran three courses with a total of only 42students. The actual operating results for September were as follows:Actual$ 32,400$ 9,080RevenueInstructor wagesClassroom suppliesUtilitiesCampus rentInsuranceAdministrative expensesRequired:$ 8,540$ 1,530$ 4,200$ 1,890$ 3,790Prepare a flexible budget performance report for September.Note: Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zerovariance). Input all amounts as positive values.

The flexible budget can be changed on the basis of changes in the number of units or other…

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost driv budgeting purposes-the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 50 students enrolled in those two courses. Data concerning the company's cost formulas appear below:

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost driv budgeting purposes-the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 50 students enrolled in those two courses. Data concerning the company's cost formulas appear below:

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter8: Standard Costs And Variances

Section: Chapter Questions

Problem 2EB: Salley is developing material and labor standards for her company. She finds that it costs $0.55 per...

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A local picnic table manufacturer has budgeted the following overhead costs: They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown: Recent success has yielded an order for 1,500 tables. Determine how much the job would cost given the following activities, and assuming an hourly rate for direct labor of $25 per hour:
Advent Software uses standards to manage the cost of the programming staff. There are two programmer levels, Level 1 and Level 2. Level 1 programmers normally work on the easier projects. Level 1 and Level 2 programmers are paid 25 and 35 per hour, respectively. It has been determined from experience that Level 2 programmers can complete 50 lines of code per hour. If a Level 1 programmer is assigned to a Level 2 task, the programming work will be slower than the Level 2 time standard, but will be accomplished at a lower labor rate. During a recent week, a Level 2 project was assigned to a Level 1 programmer. The programmer worked 40 hours and completed 1,400 lines of code. a. Determine the direct labor time variance for this worker. b. Determine the direct labor rate variance for this worker. c. Using the information in (a) and (b), is it more cost effective to use a Level 1 worker or a Level 2 worker on a Level 2 project?
Andalus Furniture Company has two manufacturing plants, one at Aynor and another at Spartanburg. The cost in dollars of producing a kitchen chair at each of the two plants is given here. The cost of producing Q1 chairs at Aynor is: 75Q1+5Q12+100 and the cost of producing Q2 kitchen chairs at Spartanburg is: 25Q2+2.5Q22+150. Andalus needs to manufacture a total of 40 kitchen chairs to meet an order just received. How many chairs should be made at Aynor, and how many should be made at Spartanburg in order to minimize total production cost?
Evans, Inc., has a unit-based costing system. Evanss Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours for years to assign overhead to products. To help design engineers understand the assumed cost relationships, the Cost Accounting Department developed the following cost equation. (The equation describes the relationship between total manufacturing costs and direct labor hours; the equation is supported by a coefficient of determination of 60 percent.) Y=5,000,000+30X,whereX=directlaborhours The variable rate of 30 is broken down as follows: Because of competitive pressures, product engineering was given the charge to redesign products to reduce the total cost of manufacturing. Using the above cost relationships, product engineering adopted the strategy of redesigning to reduce direct labor content. As each design was completed, an engineering change order was cut, triggering a series of events such as design approval, vendor selection, bill of materials update, redrawing of schematic, test runs, changes in setup procedures, development of new inspection procedures, and so on. After one year of design changes, the normal volume of direct labor was reduced from 250,000 hours to 200,000 hours, with the same number of products being produced. Although each product differs in its labor content, the redesign efforts reduced the labor content for all products. On average, the labor content per unit of product dropped from 1.25 hours per unit to one hour per unit. Fixed overhead, however, increased from 5,000,000 to 6,600,000 per year. Suppose that a consultant was hired to explain the increase in fixed overhead costs. The consultants study revealed that the 30 per hour rate captured the unit-level variable costs; however, the cost behavior of other activities was quite different. For example, setting up equipment is a step-fixed cost, where each step is 2,000 setup hours, costing 90,000. The study also revealed that the cost of receiving goods is a function of the number of different components. This activity has a variable cost of 2,000 per component type and a fixed cost that follows a step-cost pattern. The step is defined by 20 components with a cost of 50,000 per step. Assume also that the consultant indicated that the design adopted by the engineers increased the demand for setups from 20,000 setup hours to 40,000 setup hours and the number of different components from 100 to 250. The demand for other non-unit-level activities remained unchanged. The consultant also recommended that management take a look at a rejected design for its products. This rejected design increased direct labor content from 250,000 hours to 260,000 hours, decreased the demand for setups from 20,000 hours to 10,000 hours, and decreased the demand for purchasing from 100 component types to 75 component types, while the demand for all other activities remained unchanged. Required: 1. Using normal volume, compute the manufacturing cost per labor hour before the year of design changes. What is the cost per unit of an average product? 2. Using normal volume after the one year of design changes, compute the manufacturing cost per hour. What is the cost per unit of an average product? 3. Before considering the consultants study, what do you think is the most likely explanation for the failure of the design changes to reduce manufacturing costs? Now use the information from the consultants study to explain the increase in the average cost per unit of product. What changes would you suggest to improve Evanss efforts to reduce costs? 4. Explain why the consultant recommended a second look at a rejected design. Provide computational support. What does this tell you about the strategic importance of cost management?
Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sell the track assembly for 66 per unit. Brees is currently using a traditional, unit-based costing system that assigns overhead to jobs on the basis of direct labor hours. The estimated traditional full cost of producing the track assembly is as follows: Prior to making a decision, the companys CEO commissioned a special study to see whether there would be any decrease in the fixed overhead costs. The results of the study revealed the following: 3 setups1,160 each (The setups would be avoided, and total spending could be reduced by 1,160 per setup.) One half-time inspector is needed. The company already uses part-time inspectors hired through a temporary employment agency. The yearly cost of the part-time inspectors for the track assembly operation is 12,300 and could be totally avoided if the part were purchased. Engineering work: 470 hours, 45/hour. (Although the work decreases by 470 hours, the engineer assigned to the track assembly line also spends time on other products, and there would be no reduction in his salary.) 75 fewer material moves at 30 per move. Required: 1. Ignore the special study, and determine whether the track assembly should be produced internally or purchased from the supplier. 2. Now, using the special study data, repeat the analysis. 3. Discuss the qualitative factors that would affect the decision, including strategic implications. 4. After reviewing the special study, the controller made the following remark: This study ignores the additional activity demands that purchasing would cause. For example, although the demand for inspecting the part on the production floor decreases, we may need to inspect the incoming parts in the receiving area. Will we actually save any inspection costs? Is the controller right?
Young Company is beginning operations and is considering three alternatives to allocate manufacturing overhead to individual units produced. Young can use a plantwide rate, departmental rates, or activity-based costing. Young will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected? a. All production costs approach those costs that were budgeted. b. The sales mix does not vary from the mix that was budgeted. c. All manufacturing overhead is a fixed cost. d. All ending inventory balances are zero.
The chief executive officer of Acadia, Inc. attended a conference in which one of the sessions was devoted to variable costing. The CEO was impressed by the presentation and has asked that the following data of Acadia, Inc. be used to prepare comparative statements using variable costing and the companys absorption costing. The data follow: The factory produced 80,000 units during the period, and 70,000 units were sold for 700,000. 1. Prepare an income statement using variable costing. 2. Prepare an income statement using absorption costing. (Round unit costs to three decimal places.)
Bucknum Boys, Inc., produces hunting gear for buck hunting. The companys main production departments are Molding and Finishing. Production of the hunting gear cannot be accomplished without the supporting tasks of Materials Management and meals for production employees provided by the Cafeteria. Cafeteria costs are always higher than Materials Management costs. The company believes that the number of employees in each department is the best driver of Cafeteria costs. The number of employees in each department is as follows: The company also believes that the value of support materials used in each department is the best driver for Materials Management costs. The support materials used in the Molding and Finishing departments are valued at 1,800 and 2,700, respectively. Using the sequential method for support department cost allocation (allocating Cafeteria costs first), determine (a) the percentage of Cafeteria costs that should be allocated to the Molding Department and (b) the percentage of Materials Management costs that should be allocated to the Finishing Department.
Salley is developing material and labor standards for her company. She finds that it costs $0.55 per pound of material per widget. Each widget requires 6 pounds of material per widget. Salley is also working with the operations manager to determine what the standard labor cost is for a widget. Upon observation, Salley notes that it takes 3 hours in the assembly department and 1 hour in the finishing department to complete one widget. All employees are paid $10.50 per hour. A. What is the standard materials cost per unit for a widget? 8. What is the standard labor cost per unit for a widget?
Mott Company recently implemented a JIT manufacturing system. After one year of operation, Heidi Burrows, president of the company, wanted to compare product cost under the JIT system with product cost under the old system. Motts two products are weed eaters and lawn edgers. The unit prime costs under the old system are as follows: Under the old manufacturing system, the company operated three service centers and two production departments. Overhead was applied using departmental overhead rates. The direct overhead costs associated with each department for the year preceding the installation of JIT are as follows: Under the old system, the overhead costs of the service departments were allocated directly to the producing departments and then to the products passing through them. (Both products passed through each producing department.) The overhead rate for the Machining Department was based on machine hours, and the overhead rate for assembly was based on direct labor hours. During the last year of operations for the old system, the Machining Department used 80,000 machine hours, and the Assembly Department used 20,000 direct labor hours. Each weed eater required 1.0 machine hour in Machining and 0.25 direct labor hour in Assembly. Each lawn edger required 2.0 machine hours in Machining and 0.5 hour in Assembly. Bases for allocation of the service costs are as follows: Upon implementing JIT, a manufacturing cell for each product was created to replace the departmental structure. Each cell occupied 40,000 square feet. Maintenance and materials handling were both decentralized to the cell level. Essentially, cell workers were trained to operate the machines in each cell, assemble the components, maintain the machines, and move the partially completed units from one point to the next within the cell. During the first year of the JIT system, the company produced and sold 20,000 weed eaters and 30,000 lawn edgers. This output was identical to that for the last year of operations under the old system. The following costs have been assigned to the manufacturing cells: Required: 1. Compute the unit cost for each product under the old manufacturing system. 2. Compute the unit cost for each product under the JIT system. 3. Which of the unit costs is more accurate? Explain. Include in your explanation a discussion of how the computational approaches differ. 4. Calculate the decrease in overhead costs under JIT, and provide some possible reasons that explain the decrease.
Box Springs. Inc., makes two sizes of box springs: queen and king. The direct material for the queen is $35 per unit and $55 is used in direct labor, while the direct material for the king is $55 per unit, and the labor cost is $70 per unit. Box Springs estimates it will make 4,300 queens and 3,000 kings in the next year. It estimates the overhead for each cost pool and cost driver activities as follows: How much does each unit cost to manufacture?
Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse: Direct machine hours were estimated as follows: In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows: a. Determine the per-unit factory overhead allocated to the commercial and residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base. b. Determine the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department. c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.