Marek Company specializes in manufacturing a unique model of bicycle helmet. The
ID: 2597304 • Letter: M
Question
Marek Company specializes in manufacturing a unique model of bicycle helmet. The model is well accepted by consumers, and the company has the capacity to produce up to 12,000 helmets Marek's budgeted costs for 10,000 helmets are as follows (V = variable): Rent on factory equipment Insurance on factory building Raw materials (plastic) Utility costs for the factory S 6,000 1,500 70,000V 900 V 46,000 V 1.100V Supplies for general office 300 Wages for assembly line workers De preciation on office equipment Misc. materials (oil, solder, fasteners Factory manager's salary Property taxes on factory building Advertising for helmets Sales commissions 800 5,700 400 11,000 7.000 V Depreciation on factory building 1.500 Standard cost data for one helmet is as follows: Direct material: Direct labor: 7 lbs. of plastic $1.00/1b. 5 hrs.@$9.20/hr. INSTRUCTIONS (Can be done either alone or in groups of 2 or 3): a) Classify the costs as follows: DM. DL, MO, Period. Total the dollar amounts in b) Compute the predetermined overhead rate, using direct labor hours as the activity c) Prepare a condensed Flexible Budget assuming that 8,000, 9,000, 10,000 and d) Prepare a condensed Flexible Budget Report. (See p. 1117, 11. 24-16.) Nine each column. (See p. 719, Ill. 15-4. Use S amounts, not Xs) base. (See p. 1069, Il1. 23-10.) 11,000 helmets are produced. Include the following four line items: Direct material, Direct labor, Variable MO, Fixed MO. (See p. 1115, Il1. 24-13.) thousand (9,000) helmets are produced. Actual usage and spending is as follows: Direct material Direct labor Variable MO Fixed MO 62,000 lbs. $1.10/1b 4,600 hrs. @ $9.10/hr $2.000 $15,000 e) Compute and label 1) the quantity and price variances for direct material and direct labor, and 2) the total overhead variance. (See Ch. 25.) Check figures: Predetermined OH rate is $3.42/direct labor hour. In part d), the total budget amount is $121,300.Explanation / Answer
a) Cost item DM DL MO Period Rent on factory equipment $6,000 Insurance on factory building $1,500 Raw materials(plastic) $70,000 Utility cost for factory $900 Supplies for general office $300 Wages for assembly line workers $46,000 Depreciation-office equipment $800 Misc material (Oil etc) $1,100 Factory manager's salary $5,700 Property taxes on factory building $400 Advertising for helmet $11,000 Sales commissions $7,000 Depreciation-factory building $1,500 Total $ 70,000 $ 46,000 $ 17,100 $ 19,100 b) Calculation of predetermined overhead rate: A Budgeted Manufacturing overhead $17,100 B Standard direct labor hour per unit 5 C Budgeted production quantity 10,000 D=B*C Budgeted direct labor hour 50,000 E=A/D Predetermined overhead rate $ 0.342 ($ per direct labor hour) c) Cost item MO Fixed overhead Variable overhead Rent on factory equipment $6,000 $6,000 Insurance on factory building $1,500 $1,500 Utility cost for factory $900 $900 Misc material (Oil etc) $1,100 $1,100 Factory manager's salary $5,700 $5,700 Property taxes on factory building $400 $400 Depreciation-factory building $1,500 $1,500 Total $ 17,100 $ 15,100 $ 2,000 A B=A*8000 C=A*9000 D=A*10000 E=A*11000 Variable cost per unit Helmets produced 8,000 9000 10000 11000 (70000/10000) $7 Direct materials $56,000 $63,000 $70,000 $77,000 (46000/10000) $4.60 Direct labor $36,800 $41,400 $46,000 $50,600 (2000/10000) $0.20 Variable mfg overhead $1,600 $1,800 $2,000 $2,200 Not applicable Fixed mfg overhead $15,100 $15,100 $15,100 $15,100 Total $109,500 $121,300 $133,100 $144,900