Classifying a company’s costs allows for an in-depth analysis of the impact that changes in output have on revenues, costs, and net income or net loss. A cost-volume-profit analysis will be completed in order to determine the breakeven point. Relevant costs will be used to prepare a flexible budget. Additionally, an appropriate costing system should be selected and the choice should be substantiated with reasonable rationale. Finally, a memo should be prepared for management that summarizes the results of the quantitative analysis and makes recommendations for an optimal costing system to be ethically used by key decision makers. For Milestone Two, you will analyze the budget and actual costs using the MDE Manufacturing Budget (Tables I, II, III, IV). Determine where variances occurred and why. Submit the Student Workbook with Tabs 3 and 4 completed with your budgets/variances and a 1–2 page Word document that discusses the implications of your findings on MDE’s financial considerations. Explain which aspects of MDE’s budgeting process are in need of improvement and justify your response using your calculations. ACC 207 MDE Manufacturing Budget: Bird Feeder I. Sales and Manufacturing Expenses: Budget and Actual (2014) You will use this table to complete Milestones One and Two. Budget ($) Actual ($) Sales 1,050,000 991,700 Expenses Materials – Cedar 225,000 248,160 Materials – Plastic 37,500 37,741 Factory Worker Labor 300,000 332,760 Materials – Indirect 3,000 2,585 Factory Depreciation 78,000 78,000 Factory Utilities 12,000 12,000 Factory Maintenance and Repairs 5,000 4,500 Shipping ($2.25/each) 112,500 105,750 Sales Commissions ($2.00/unit sold) 100,000 94,000 Office Rent 12,000 12,000 Advertising 20,000 20,000 Liability insurance 5,000 5,000 Office Depreciation 1,000 1,000 Office Salaries 48,000 48,000 Total Expenses 959,000 1,001,496 II. Contribution Margin: Static Budget and Actual Results (2014) You will use this table to complete Milestone Two. Actual Results Static Budget Amount Units Sold 47,000 50,000 Revenues ($) 991,700 1,050,000 Manufacturing Costs ($) Variable 621,246 565,500 Fixed 94,500 95,000 Gross Margin 275,954 389,500 III. Standard Variable Manufacturing Costs (2014) You will use this table to complete Milestone Two. Static Budget Costs Standard Input Direct Materials: Cedar 225,000 3.0 ft/unit Direct Materials: Plastic 37,500 1.0 ft/unit Direct Manufacturing Labor 300,000 0.5 hrs/unit Variable Manufacturing Overhead 3,000 0.3 ft/unit IV. Actual Variable Manufacturing Costs (2014) You will use this table to complete Milestone Two. Actual Costs Actual Input Direct Materials: Cedar 248,160 3.2 ft/unit Direct Materials: Plastic 37,741 1.1 ft/unit Direct Manufacturing: Labor ($) 332,760 11.80/hr Variable Manufacturing Overhead 2,585 0.2 ft/unit Milestone One, Part II Use Table I on the MDE Manufacturing Budget to complete your calculations. Totals Totals Budget Actual Sales Price per Unit $ 21 $ 21.10 Variable Costs 5.28 Materials - Cedar $ 4.50 $ 0.80 Materials - Plastic $ 0.75 $ 7.08 Factory Worker Labor $ 6.00 $ 0.06 Materials - Indirect $ 0.06 $ 2.25 Shipping ($2.25/ea) $ 2.25 $ 2.00 Sales Commissions ($2/unit sold) $ 2.00 $ 17.47 Variable Cost per Unit $ 15.56 $ 17.47 Contribution Margin $ 5.44 $ 3.63 Fixed Costs Factory Depreciation $ 78,000 $ 78,000 Factory Utilities $ 12,000 $ 12,000 Factory Maintenance and Repairs $ 5,000 $ 4,500 Office Rent $ 12,000 $ 12,000 Advertising $ 20,000 $ 20,000 Liability Insurance $ 5,000 $ 5,000 Office Depreciation $ 1,000 $ 1,000 Office Salaries $ 48,000 $ 48,000 Total Fixed Costs $ 181,000 $ 180,500 Using Budgeted Amounts Breakeven Point - 33272 units Breakeven Point - Using Actual Amounts $ 21.10 Units at Current Sales Price + 10,000 profit Using actual amounts $ 4.05 New Contribution Margin + 10,000 profit $ 17.47 Current Variable Costs $ 21.52 New Sales Price Milestone Two, Part I Use Tables I through IV on the MDE Manufacturing Budget to complete your calculations. Refer to Exhibit 7-2 on page 253 of the text Budget Model From Flexible Budget Calculations Sheet Actual Flexible Budget Variance Favorable/ Unfavorable Flexible Budget Sales Volume Variance Favorable/ Unfavorable Static Budget Units Sold 47,000 0 47,000 (3,000) Unfavorable 50,000 Revenues $991,700 $4,700 Favorable $987,000 ($63,000) Unfavorable $1,050,000 Variable Costs DM-Plastic DM-Cedar Direct Manuf. Labor Variable Manuf. Overhead Total Variable Costs Fixed Manuf. Overhead Total Costs Gross Margin Milestone Two, Part II Use the variance supporting calculation tab to complete your calculations. Price Variance Efficiency Variance Direct Materials - Cedar Direct Materials - Plastic Direct Labor Spending Variance Efficiency Variance Variable Manufacturing Overhead Budgeted Unit Actual Volume Flexible Budget Amounts Amount Revenues $ 21.00 47,000 $987,000 Variable Costs DM-Plastic 4.50 47,000 211,500 DM-Cedar Direct Manuf. Labor Variable Manuf. Overhead Total Variable Manufacturing Costs Fixed Manufacturing Overhead Total Manufacturing Costs Gross Margin Use Tables III and IV on the MDE Manufacturing Budget to complete your calculations. Development of Price and Efficiency Variances - Calculations Actual Ounces per Unit Actual Units Actual Ounces Used Actual Cost Actual Cost per Unit DM-Plastic DM-Cedar Actual Labor Cost per Hour Actual Labor Costs Actual Labor Hours Actual Units Actual Labor Hours per Unit Direct Manuf. Labor Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Actual Units Actual Feet per Unit Actual Price per Ounce Actual Units Actual Feet per Unit Budgeted Cost per Ounce Actual Units Budgeted Feet per Unit Budgeted Cost per Ounce Direct Material Plastic $ - $ - $ - $ - $ - Price Variance Efficiency Variance Direct Material Cedar $ - $ - $ - $ - $ - Price Variance Efficiency Variance Actual Units Actual Hours per Unit Actual Cost per Hour Actual Units Actual Hours per Unit Budgeted Cost per Hour Actual Units Budgeted Hours per Unit Budgeted Cost per Hour Direct Manufacturing Labor $ - $ - $ - $ - $ - Price Variance Efficiency Variance Actual Costs Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Actual Costs Actual Units Actual Feet per Unit Budgeted Cost per Foot Actual Units Budgeted Feet per Unit Budgeted Cost per Foot Variable manufacturing overhead $ - $ - $ - $ - $ - Spending Variance Efficiency Variance