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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Problems 9-67 through 9-69:

Ladan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budget for overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture for healthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. The two dog foods use common raw materials in different proportions. The company expects to produce 80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hour per bag, and SpecialDiet requires 0.30 direct labor hour per bag. Ladan has developed the following fixed and variable costs for each of the four overhead items:

Chapter 9, Problem 69P, Use the following information for Problems 9-67 through 9-69: Ladan Suriman, controller for Healthy , example  1

Problem 9-69 Performance Report Based on Actual Production

Refer to the information for Healthy Pet Company on the previous page. Assume that Healthy Pet actually produced 100,000 bags of BasicDiet and 90,000 bags of SpecialDiet. The actual overhead costs incurred were as follows:

Chapter 9, Problem 69P, Use the following information for Problems 9-67 through 9-69: Ladan Suriman, controller for Healthy , example  2

Required:

  1. 1. Calculate the number of direct labor hours budgeted for actual production of the two products.
  2. 2. Prepare a performance report for the period based on actual production.
  3. 3. CONCEPTUAL CONNECTION Based on the report, would you judge any of the variances to be significant? Can you think of some possible reasons for the variances?

1.

To determine

Compute direct labor hours for actual production.

Explanation

Overhead Budget:

Overhead budget is a part of operating budget which computes production cost expected to incur within a period other than cost of material and labor.

Computation of direct labor hours:

ParticularsAmount ($)
Product BD: 
Expected units (A)100,000
Labor hours per unit (B)0.2
Total labor hours (A×B) (1)

2.

To determine

Present a performance report.

3.

To determine

Explain whether the variances are significant and also explain the possible reasons for the variances.

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