Cost Classification The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs. Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor. Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment To Classify: Items in the fixed budget as variable or fixed along with amounts per unit / per year

Question

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Answer 1

Question

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.

Conclusion

Hence the decrease in budgeted operating profit at 12,000 levels of production is calculated.

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Answer 2

Question

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.

Conclusion

Hence the decrease in budgeted operating profit at 12,000 levels of production is calculated.

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Answer 3

Question

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.

Conclusion

Hence the decrease in budgeted operating profit at 12,000 levels of production is calculated.

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Answer 4

Question

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.

Conclusion

Hence the decrease in budgeted operating profit at 12,000 levels of production is calculated.

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Answer 5

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.

Conclusion

Hence the decrease in budgeted operating profit at 12,000 levels of production is calculated.

Answer 6

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

Answer 7

Chapter 23, Problem 1APSA

1)

To determine

Introduction:

Cost Classification

The time taken from the start of the sale process, i.e. the receipt of a confirmed sales order, to the completion of the transfer of goods or services, i.e. dispatch of goods consists of several activities and costs. Components of costs comprise of Variable costs, Manufacturing costs and Fixed costs.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment

To Classify:

Items in the fixed budget as variable or fixed along with amounts per unit / per year

Answer 8

1)

Expert Solution

Answer to Problem 1APSA

Solution:

Particulars	Variable / Fixed	Amount (Total)	Amount (Per Unit)
Direct Materials	Variable	$ 975,000.00	$ 65.00
Direct Labor	Variable	$ 225,000.00	$ 15.00
Machinery repair cost (variable)	Variable	$ 60,000.00	$ 4.00
Depreciation	Fixed	$ 300,000.00	NA
Utilities Expense	Fixed ,Variable	$ 195,000.00	$ 3.00
Plant management salaries	Fixed	$ 200,000.00	NA
Packaging expense	Variable	$ 75,000.00	$ 5.00
Shipping expense	Variable	$ 105,000.00	$ 7.00
Sales Salary (Fixed)	Fixed	$ 250,000.00	NA
Advertising Expense	Fixed	$ 125,000.00	NA
Salaries	Fixed	$ 241,000.00	NA
Entertainment expense	Fixed	$ 90,000.00	NA

Answer 9

1)

Expert Solution

Answer 10

1)

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

The entire cycle of business activities in the order to cash process and operating cycle of a company, comprises of several elements of cost such as direct costs of material, labor and overheads and indirect costs such as selling and administrative expenses, depreciation.

Each of these elements of the various Value added and Non value added activities has costs associated with it that are comprise of Variable costs, Fixed costs and Manufacturing overheads.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured.

Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

The sales volume is 15,000 units and the variable costs per unit are ascertained in relation to the sales volume.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Packaging expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $75,000 / 15,000 = $5 per unit

Shipping expenses are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $105,000 / 15,000 = $7 per unit

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Answer 13

Conclusion

Hence the costs of the fixed budget have been classified as variable or fixed along with amounts per unit / per year.

Answer 14

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

Answer 15

2)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Prepare:

Flexible Budgets at activity levels of 14000 and 16000 units.

Answer 16

2)

Expert Solution

Answer to Problem 1APSA

Solution:

			Total for 15000 Units	Total for 14000 units	Total for 16000 Units
Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)	Amount (Total)
Units Produced			15,000	14,000	16,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 910,000.00	$ 1,040,000.00
Direct Labour	Variable	$ 15.00	$ 225,000.00	$ 210,000.00	$ 240,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 56,000.00	$ 64,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 42,000.00	$ 48,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 70,000.00	$ 80,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 98,000.00	$ 112,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,386,000.00	$ 1,584,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,742,000.00	$ 2,940,000.00

Answer 17

2)

Expert Solution

Answer 18

2)

Expert Solution

Answer 19

Expert Solution

Answer 20

Explanation of Solution

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 14000 and 16000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 14,000 units and 16,000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Answer 21

Conclusion

Hence the flexible budget is prepared at activity levels of 14000 and 16000 units.

Answer 22

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

Answer 23

3)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Increase in budgeted operating profit at 18,000 levels of production.

Answer 24

3)

Expert Solution

Answer to Problem 1APSA

Solution:

The increase in budgeted operating profit at 18,000 levels of production is $ 303,000.

Answer 25

3)

Expert Solution

Answer 26

3)

Expert Solution

Answer 27

Expert Solution

Answer 28

Explanation of Solution

Following is the Operating Profit at 18,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 3,600,000.00
Units Produced			15,000	18,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 1,170,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 270,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 72,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 54,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 90,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 126,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,782,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 3,138,000.00
Operating Profit / (Loss)			$ 159,000.00	$ 462,000.00

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 18000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 18000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. An increase in production leads to an increase in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. An increase in production leads to an increase in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 18000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating profit at 18000 levels of production is $462,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates an increase in operating profit of $303,000.

Answer 29

Conclusion

Hence the Increase in budgeted operating profit at 18,000 levels of production is calculated.

Answer 30

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.

Conclusion

Hence the decrease in budgeted operating profit at 12,000 levels of production is calculated.

Answer 31

4)

To determine

Introduction:

Flexible Budgets

Fixed budgets are estimates of costs and expenses of fixed and variable nature for a predetermined level of activity or volume of manufacture. Flexible Budgets are estimates of costs and expenses fixed and variable nature that can adjusted or modified to accommodate varying levels of activity.

The flexible budget allows for comparative analysis and cost estimation for different levels of manufacturing activity. It does so by allowing the cost components that are variable in nature to be adjusted depending upon the level of activity, and the fixed costs remain the same regardless of level of activity.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment. These costs have to be borne regardless of volume of production.

To Determine:

Decrease in budgeted operating profit at 12,000 levels of production.

Answer 32

4)

Expert Solution

Answer to Problem 1APSA

Solution:

The decrease in budgeted operating profit at 12,000 levels of production is $ 303,000.

Answer 33

4)

Expert Solution

Answer 34

4)

Expert Solution

Answer 35

Expert Solution

Answer 36

Explanation of Solution

Following is the Operating Profit at 12,000 levels of production:

Particulars	Variable / Fixed	Amount (Per Unit)	Amount (Total)	Amount (Total)
Sales			$ 3,000,000.00	$ 2,400,000.00
Units Produced			15,000	12,000
Direct Materials	Variable	$ 65.00	$ 975,000.00	$ 780,000.00
Direct Labor	Variable	$ 15.00	$ 225,000.00	$ 180,000.00
Machinery repair cost (variable)	Variable	$ 4.00	$ 60,000.00	$ 48,000.00
Utilities Expense	Variable	$ 3.00	$ 45,000.00	$ 36,000.00
Packaging expense	Variable	$ 5.00	$ 75,000.00	$ 60,000.00
Shipping expense	Variable	$ 7.00	$ 105,000.00	$ 84,000.00
Total Variable Costs			$ 1,485,000.00	$ 1,188,000.00

Utilities Expense	Fixed	NA	$ 150,000.00	$ 150,000.00
Depreciation	Fixed	NA	$ 300,000.00	$ 300,000.00
Plant management salaries	Fixed	NA	$ 200,000.00	$ 200,000.00
Sales Salary (Fixed)	Fixed	NA	$ 250,000.00	$ 250,000.00
Advertising Expense	Fixed	NA	$ 125,000.00	$ 125,000.00
Salaries	Fixed	NA	$ 241,000.00	$ 241,000.00
Entertainment expense	Fixed	NA	$ 90,000.00	$ 90,000.00
Total Fixed Costs			$ 1,356,000.00	$ 1,356,000.00
Total Costs			$ 2,841,000.00	$ 2,544,000.00
Operating Profit / (Loss)			$ 159,000.00	$ (144,000.00)

Explanation:

Sales price per unit is calculated as $2,000 ($3,000,000 / 15,000). The amount for 12000 units is calculated by multiplying per unit Sales price per unit by the volume of goods sold.

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured. Variable costs are considered on a per unit basis and analysis of these costs is done on a unit level.

Flexible budgets allow for adjusting values of costs according to varied levels of activity and the costs for 12000 units by varying the variable costs.

Direct Materials are Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $975,000 / 15,000 = $65 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Direct Labor is Variable costs since they depend on the units manufactured. A decrease in production leads to an decrease in these costs and vice-versa. It is calculated as $225,000 / 15,000 = $15 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Machinery repair cost (variable) is a Variable cost since it depends on the units manufactured. A decrease in production leads to a decrease in these costs and vice-versa. It is calculated as $60,000 / 15,000 = $4 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. A decrease in production leads to a decrease in variable portion of these costs and vice-versa. It is calculated as $45,000 / 15,000 = $3 per unit. The amount for 12000 units is calculated by multiplying per unit cost by the volume of goods manufactured.

Fixed costs are costs that have to be borne regardless of the volume of production or goods manufactured. Fixed costs are considered on an annual / per year basis and are not bifurcated on a per unit basis.

Utilities Expense is given as $45,000 variable and the rest is fixed. Hence these are semi-variable costs that are both fixed and Variable. The fixed portion is to be considered on a per year basis and is calculated as $195,000 - $45,000 = $150,000.

Depreciation is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Plant management salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Sales Salary (Fixed) is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Advertising Expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Salaries is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

Entertainment expense is considered as Fixed costs since this expense has to be borne irrespective of the level of goods produced and do not fluctuate with an increase or decrease in production of goods. The amount is to be considered on a per year basis.

The operating loss at 12000 levels of production is $144,000 whereas corresponding level of operating profit at 15000 levels is $159,000. This indicates a decrease in operating profit of $303,000.