Utease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows:
Direct labor hours worked 34,000
Direct labor costs $3,094,000.00
Direct materials purchased 50,000 pounds
Direct materials costs $1,000,000.00
Direct materials used 50,000 pounds
Actual fixed overhead $1,080,000.00
Actual variable overhead $620,000.00
Actual selling and administrative costs $2,000,000.00
In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.
Instructions
a) Prepare a production budget for the coming year based on the available standards, expected sales, and desired ending inventories.
b) Prepare a budgeted responsibility income statement for the Bellingham plant for the coming a year.
c) Find the direct labor variances. Indicate if they are favorable or unfavorable and why they would be considered as such.
d) Find the direct materials variances (materials price variance and quantity variance)
e) Find the total over- or underapplied (both fixed and variable) overhead. Would cost of goods sold be a larger or smaller expense item after the adjustment for over- or underapplied overhead?