Question: PART 1: Fixed and Variable Cost Determinations Unit Cost Calculations
The projected cost of a lamp is calculated based upon the projected increases or decreases to current costs. The present costs to manufacture one lamp are:
Figurines $9.2000000 per lamp
Electrical Sets 1.2500000 per lamp
Lamp Shade 6.0000000 per lamp
Direct Labor: 2.2500000 per lamp (4 lamps/hr.)
Variable Overhead: 0.2250000 per lamp
Fixed Overhead: 10.0000000 per lamp (based on normal capacity of 25,000 lamps)
Cost per lamp: $28.9250000 per lamp
Expected increases for 20x2
When calculating projected increases round to SEVEN decimal places,$0.0000000.
1. Material Costs are expected to increase by 3.50% .
2. Labor Costs are expected to increase by 6.50%.
3. Variable Overhead is expected to increase by 3.00%.
4. Fixed Overhead is expected to increase to $265,000.
5. Fixed selling expenses are expected to be $37,000 in 20x2.
6. Variable selling expenses (measured on a per lamp basis) are expected to increase by 5.00%.
7. Fixed Administrative expenses are expected to increase by $10,000. The total administrative expenses for 20x0 were $40,005.00, when 21,500 units were sold. Use the High-Low method to calculate the total fixed administrative expense.
8. Variable administrative expenses (measured on a per lamp basis) are expected to increase by 6.00%. The total administrative expenses for 20x0 were $40,005.00, when 21,500 units were sold. Use the High-Low method to calculate the variable administrative expense per lamp.
On the following schedule develop the following figures:
1- 20x2 Projected Variable Manufacturing Unit Cost of a lamp.
2- 20x2 Projected Variable Unit Cost per lamp.
3- 20x2 Projected Fixed Costs.
PART 2: Cost Volume Relationships - Profit Planning
Big Al is about to begin work on the budget for 20x2 and they have requested that you prepare an analysis based on the following assumptions.
Note: Remember, that we cannot sell part of a lamp, therefore to find the number of units you have to round up to the next complete unit. Furthuremore, to find the required sales in dollars it may be easier to find the number of units and then multiply by the selling price per unit.
1. For 20x2 the selling price per lamp will be $45.00. What is the projected contribution margin and contribution margin ratio for each lamp sold?
2. For 20x2 the selling price per lamp will be $45.00. How many lamps must be sold to breakeven?
3. For 20x2 the selling price per lamp will be $45.00. The desired operating income in 20x2 is $262,250 . What would sales in units have to be in 20x2 to reach the profit goal?
4. For 20x2 the selling price per lamp will be $45.00. The company would like to have a operating income equal to 26.00% of sales. If that is to be achieved, what would be the sales in units in 20x2?
5. If the company believed that it could only sell 25,000 lamps, what would the new selling price have to be so that the new contribution margin per unit is equal to last year's contribution margin per unit?
6. For 20x2 the selling price per lamp will be $45.00 and the effective tax rate is 41%. How many units must be sold to generated a operating income of $270,000 after taxes?
7. If the company believes that the demand will be 27,500 units for the year. What selling price per lamp, rounded to two places, would generate a operating income of $820,500?
PART 3: Budgets
Keep in mind that the budget section builds on work from the previous parts, including Part I as well as the Background Information (tabs 1-4). You should continue to use the same file with your previously submitted answers.
Division N has decided to develop its budget based upon projected sales of 33,000 lamps at $52.00 per lamp.
The company has requested that you prepare a master budget for the year. This budget is to be used for planning and control of operations and should be composed of:
1. Production Budget
2. Materials Budget
3. Direct Labor Budget
4. Factory Overhead Budget
5. Selling and Administrative Budget
6. Cost of Goods Sold Budget
7. Budgeted Income Statement
8. Cash Budget
Notes for Budgeting:
The company wants to maintain the same number of units in the beginning and ending inventories of work-in-process, and electrical parts while increasing the figurines inventory to 700 pieces and increasing the finished goods by 27.00% .
PART 4.1: Process Costing - Weighted Average
General Information
The I See The Light Company has a related company that produces the figurines. They use process costing in the molding department. The factory overhead is applied at a rate of 50% of direct labor dollars. The material is added at the beginning of the process. The labor and overhead costs are assumed to be added uniformly throughout.
Month of January
Selected information for January is presented below. Note that the applied overhead rate was 50% of direct labor costs in the molding department.
Molding Department
Goods in-process as of January 1 were 3,200 figurines at a cost of $10,656.00. Of this amount, $1,920.00 was from raw materials added, $5,824.00 for labor and $2,912.00 for overhead. These 3,200 figurines were assumed to be 70.00% complete as to labor and overhead.
During January, 24,500 units were started, $15,680.00 of materials and $60,346.00 of labor costs were incurred.
The 4,500 figurines that were in-process at the end of January were assumed to be 50.00% complete to labor and overhead.
All figurines in January passed inspection.
PART 4.2: Process Costing - First-In First-Out
Mr. Jones, a consultant, has indicated that FIFO process costing would produce more meaningful cost data.
General Information
The I See The Light Company has a related company that produces the figurines. They use process costing in the molding department. The factory overhead is applied at a rate of 50% of direct labor dollars. The material is added at the beginning of the process. The labor and overhead costs are assumed to be added uniformly throughout.
Month of January
Selected information for January is presented below. Note that the applied overhead rate was 50% of direct labor costs in the molding department.
Molding Department
Goods in-process as of January 1 were 3,200 figurines at a cost of $10,656.00. Of this amount, $1,920.00 was from raw materials added, $5,824.00 for labor and $2,912.00 for overhead. These 3,200 figurines were assumed to be 70.00% complete as to labor and overhead.
During January, 24,500 units were started, $15,680.00 of materials and $60,346.00 of labor costs were incurred.
The 4,500 figurines that were in-process at the end of January were assumed to be 50.00% complete to labor and overhead.
All figurines in January passed inspection.
PART 4.3: Process Costing - Weighted Average With Spoilage
Mr. Smith, a consultant, has indicated that the Weighted Average method is appropriate our needs. He is concerned about the number of units that failed inspection and the pricing of the good units completed.
General Information
The I See The Light Company has a related company that produces the figurines. They use process costing in the molding department. The factory overhead is applied at a rate of 50% of direct labor dollars. The material is added at the beginning of the process. The labor and overhead costs are assumed to be added uniformly throughout. The industrial engineers have studied our system and have determined that the acceptable loss for every hundred units that pass the inspection point is 5 units.
Month of January
Selected information for January is presented below. Note that the applied overhead rate was 50% of direct labor costs in the molding department.
Molding Department
Goods in-process as of January 1 were 3,200 figurines at a cost of $10,656.00. Of this amount, $1,920.00 was from raw materials added, $5,824.00 for labor and $2,912.00 for overhead. These 3,200 figurines were assumed to be 70.00% complete as to labor and overhead.
During January, 24,500 units were started, $15,680.00 of materials and $60,346.00 of labor costs were incurred.
The 4,500 figurines that were in-process at the end of January were assumed to be 50.00% complete to labor and overhead.
While normal spoilage is 5% of the good units completed, 2,320 units failed inspection in January. The units are inspected at the end of the process.
PART 5: Job Order Costing
To keep records of the actual cost of a special order job, a Job Order Cost System has been developed. Overhead is applied at the rate of 50% of the direct labor cost.
Job Order Costing Section
On January 1, 20x2, Division S began Job 2407 for the Client, THE BIG CHILDREN STORE. The job called for 4,000 customized lamps. The following set of transactions occurred from January 5 until the job was completed:
5-Jan Purchased 4,175 figurines @ $9.70 per figurine.
6-Jan Purchased 4,075 sets of electical components @ $1.35 per set.
7-Jan Purchased 4,000 lamp shades @ $6.60 per set.
8-Jan 4,175 figurines were requisitioned.
9-Jan 4,050 sets of electrical components were requisitioned.
17-Jan Payroll of 640 Direct Labor Hours @ $9.50 per hour.
28-Jan 3,990 lamp shades were requisitioned
30-Jan Payroll of 690 Direct Labor Hours @ $9.75 per hour.
30-Jan 3,990 lamps were completed and shipped. All materials requisitioned were used or scrapped, and are a cost of normal processing.
Month End Overhead Information
Actual Variable Manufacturing Overhead $1,356.60
Actual Fixed Manufacturing Overhead $41,373.45
PART 6: Standard Job Order Costing - Variance Analysis
Special order lamps are manufactured in division S. Because of the precise nature of the process a standard cost system has been developed. The following standards are used for the special orders:
Standards
Figurines $9.500000 per lamp
Electrical Sets 1.300000 per lamp
Lamp Shade per lamp
Direct Labor 2.400000 per lamp (4 lamps/hr.)
Variable Overhead per lamp (4 lamps/hr.)
** Fixed Overhead per lamp
Total
** Fixed overhead is based on expected production of ##### customized lamps each month.
To keep records of the actual cost of a job, a Job Order Cost System has been developed. Entries are made to the Job Order System at actual cost (overhead is applied based on actual labor hours) while entries are made to the accounting system at standard. Variance analysis is used to analyze the differences.
Job Order Costing Section
On January 1, 20x2, Division S began Job 1101 for the Client, THE BIG CHILDREN STORE. The job called for 4,000 customized lamps. The following set of transactions occurred from January 5 until the job was completed:
5-Jan Purchased 4,175 figurines @ $9.70 per figurine.
6-Jan Purchased 4,075 sets of electical components @ $1.35 per set.
7-Jan Purchased 4,000 lamp shades @ $6.60 per set.
8-Jan 4,175 figurines were requisitioned.
9-Jan 4,050 sets of electrical components were requisitioned.
17-Jan Payroll of 640 Direct Labor Hours @ $9.50 per hour.
28-Jan 3,988 lamp shades were requisitioned
30-Jan Payroll of 690 Direct Labor Hours @ $9.75 per hour.
30-Jan 3,988 lamps were completed and shipped. All materials requisitioned were used or scrapped.
Month End Overhead Information
Actual Variable Overhead $1,356.60
Actual Fixed Overhead $41,373.45
How many Lamps were completed?
Note: Show favorable variances as negative numbers
What was the total material price variance for the figurines purchased?
What was the material usage variance for figurines?
What was the material price variance for the electrical components ?
What was the material usage variance for electrical components?
What was the direct labor efficiency variance ?
What was the direct labor rate variance?
The total material price variance for the lamp shades purchased: $120.00 Unfavorable
The variable overhead efficiency variance: $412.92 Unfavorable
The variable OH spending variance: $292.60 Favorable
The fixed OH volume (denominator) variance: $241.20 Unfavorable
The fixed OH spending variance: $1,052.85 Unfavorable
What was the standard cost of a Lamp Shade?
What was the standard cost per lamp for the variable overhead?
What was the budgeted fixed overhead?
What was the standard cost per lamp for the fixed overhead?
What was the monthly expected production of customized lamps that was used to determine the standard fixed overhead rate?
PART 7: Capital Decision Making
Big Al gives his worker's a one hour lunch and two fifteen minute breaks each day. He believes that a cold soda machine would be appreciated by his workers, and an appreciated worker is a good worker. He has priced a machine at a national member only warehouse for $1,900. The machine should be usable for 6 years, after which it would be inefficient, obsolete and would have to be disposed of at the dump. Big Al believes that 12 cans a day will be purchased. The plant is open five days a week, 50 weeks per year. A case of soda (24 cans) costs $6.00 and Big Al believes that a price of $.55 per can would win him good will.
What is the estimated annual sales in cans of soda?
What is the contribution margin per can of soda? (rounded to five places, $#.#####)
How many cans of soda must be sold each year to breakeven? (Round up to zero places, ###,### cans)
Annual incremental cash inflows from the soda machine? (rounded to two places, $#.##)
What is the payback period in years? (rounded to two places, #.## years)
If the time value of money is 12% per year what is the net present value? Use the tables on page 23.
What is the internal rate of return. Pick the closest interest rate from the tables on page 23.
Information related to above question is enclosed below:
Attachment:- Data.rar