Concept explainers
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
Problem 9-67 Overhead Budget for a Particular Level of Activity
Refer to the information for Healthy Pet Company above.
Required:
- 1. Calculate the total direct labor hours required for the production of 80,000 bags of BasicDiet and 80,000 bags of SpecialDiet.
- 2. Prepare an overhead budget for the expected activity level (calculated in Requirement 1) for the coming year.
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Chapter 9 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
- 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: 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: Required: 1. Calculate the number of direct labor hours budgeted for actual production of the two products. 2. Prepare a performance report for the period based on actual production. 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?arrow_forwardKrouse Company produces two products, forged putter heads and laminated putter heads, which are sold through specialty golf shops. The company is in the process of developing itsoperating budget for the coming year. Selected data regarding the companys two products areas follows: Manufacturing overhead is applied to units using direct labor hours. Variable manufacturing overhead Ls projected to be 25,000, and fixed manufacturing overhead is expected to be15,000. The estimated cost to produce one unit of the laminated putter head is: a. 42. b. 46. c. 52. d. 62.arrow_forwardFirenza Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is: Previously, Sanjay Bhatt, Firenza Companys controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 50,000. Sanjay has been reading about activity-based costing, and he wonders whether or not it might offer some advantages to his company. He decided that appropriate drivers for overhead activities are purchase orders for purchasing, number of setups for setup cost, engineering hours for engineering cost, and machine hours for other. Budgeted amounts for these drivers are 5,000 purchase orders, 500 setups, and 2,500 engineering hours. Sanjay has been asked to prepare bids for two jobs with the following information: The typical bid price includes a 40 percent markup over full manufacturing cost. Required: 1. Calculate a plantwide rate for Firenza Company based on machine hours. What is the bid price of each job using this rate? 2. Calculate activity rates for the four overhead activities. What is the bid price of each job using these rates? 3. Which bids are more accurate? Why?arrow_forward
- A local picnic table manufacturer has budgeted the following overhead costs: They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown: Recent success has yielded an order for 1,500 tables. Determine how much the job would cost given the following activities, and assuming an hourly rate for direct labor of $25 per hour:arrow_forwardMaizy Industries is a producer of baby products. They manufacture two main products: spit-up rags and blankets. The company currently allocates manufacturing overhead to production at a rate of $5.00 per direct labor hour. In order to gain a better understanding of how its products consume overhead resources, the company is considering using activity-based costing for internal planning and decision-making purposes. Two activities have been identified as generating 80% of the total budgeted manufacturing overhead. Information related to the two activities is as follows: Activity Machine Setup Inspection Cost Pool $100,000 $80,000 Cost Driver Activity Level 305 Setups 1,000 Inspection Hours The remaining overhead is attributable to general factory costs and will continue to be allocated based on direct labor hours. If one of the company's products requires 50 setups, 500 inspection hours, and 10,000 direct labor hours, is the product being overcosted or undercosted by the traditional…arrow_forwardRouse manufactures coffee mugs that it sells to other companies for customizing with their own logos. Rouse prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budge volume of 59,700 coffee mugs per month:arrow_forward
- Palladium Inc. produces a variety of household cleaning products. Palladium's controller has developed standard costs for the following four overhead items: Overhead Item Total Fixed Cost Variable Rate per Direct Labor Hour Maintenance $86,000 $0.20 Power  $0.45 Indirect Labor $140,000 $2.10 Rent $35,000  Next year, Palladium expects production to require 88,000 direct labor hours. Prepare an overhead budget for the expected level of direct labor hours for the coming year.arrow_forwardJim Franklin, the operations manager for Tires for Speed, was reviewing the product costs for his company’s performance tires. The current production schedule calls for the tires to be produced in batches of 1,000 tires. Between each batch, the production and packaging lines must be completely cleaned to remove all remnants of rubber before changing to the next batch. Currently, Tires for Speed makes 6 different tire models. Under the company’s activity-based costing system, each batch incurs direct setup and cleaning charges of $500. To reduce costs in the coming year, Jim plans to increase the minimum batch size to 2,000 tires, which will reduce the number of required setups. A total of 80,000 tires are produced each year. RequiredA.   What effect will Jim’s decision to increase the batch size have on his total    setup costs?   What effect will Jim’s decision to increase the batch size have on the cost of a tire? C. Suppose two workers are required to run each batch. Each worker…arrow_forwardMarvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,000 hours each month to produce 2,000 sets of covers. The standard costs associated with this level of production are:   Total Per Setof Covers Direct materials $ 41,400 $ 20.70  Direct labor $ 8,000  4.00  Variable manufacturing overhead (based on direct labor-hours) $ 3,400  1.70     $ 26.40    During August, the factory worked only 1,050 direct labor-hours and produced 2,400 sets of covers. The following actual costs were recorded during the month:   Total Per Setof Covers Direct materials (7,500 yards) $ 48,000 $ 20.00  Direct labor $ 10,080  4.20  Variable manufacturing overhead $ 5,040  2.10     $ 26.30    At…arrow_forward
- Blackwelder Factory produces two similar products: small table lamps and desk lamps. The total factory overhead budget is $640,000 with 400,000 estimated direct labor hours. It is further estimated that small table lamp production will require 275,000 direct labor hours, and desk lamp production will need 125,000 direct labor hours. Using a single plantwide factory overhead rate with an allocation base of direct labor hours, the factory overhead that Blackwelder Factory will allocate to desk lamp production if actual direct labor hours for the period for desk lamps is 118,000 would bearrow_forwardAt Soothing Serums, Inc., Division A produces a lotion base that is purchased by customers who add additional ingredients to create their own skin care products. Soothing Serums has decided to create a new Division B that would add some ingredients and allow Soothing Serums to enter the skin care market themselves. Division A has the capacity to produce 30,000 gallons of lotion base per month and the variable cost of each gallon is $35. Currently, Division A sells approximately 25,000 gallons of lotion base each month to customers for $47 per gallon. If they were to create Division B, it would need to purchase 15,000 gallons of lotion base per month from Division A. Division A would not realize any savings in variable costs from selling the lotion base to Division B instead of selling to outside customers. From Division A's standpoint, the lowest acceptable transfer price would be: Multiple Choice $43.00 per unit $47.00 per unit $20.00 per unit $35.00 per unitarrow_forwardAlyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 88 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:   Fixed Cost per Month Cost per Cruise Cost per Passenger Vessel operating costs $ 6,400 $ 478.00 $ 3.20 Advertising $ 2,600   Administrative costs $ 5,000 $ 32.00 $ 1.50 Insurance $ 3,300    For example, vessel operating costs should be $6,400 per month plus $478.00 per cruise plus $3.20 per passenger. The company’s sales should average $35.00 per passenger. In July, the company provided 51 cruises for a total of 3,000 passengers.  Required: Prepare the company’s flexible budget for…arrow_forward
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