QUESTION

Assignment #1: Determine Manufacturing Overhead Cost

Deliverable:

*Completed Overhead Analysis Document. Template is attached to this email.

Word Count: 500 word Analysis and Calculations

Additional Budget Information

Product quantity

Basketballs 58,000

Hockey Sticks 85,000

Baseball Gloves 100,000

Number of batches (cost driver)

Basketballs 450

Hockey Sticks 300

Baseball Gloves 600

Machine hours (cost driver)

Basketballs 13,500

Hockey Sticks 10,500

Baseball Gloves 15,000

Square footage of production space used (cost driver)

Basketballs 3,200

Hockey Sticks 5,000

Baseball Gloves 7,800

Factors to consider:

Number of batches is the cost driver for setup costs.
Number of machine hours is the cost driver for equipment and maintenance costs.
Factory rent is paid per square foot.
Total available factory square footage is 20,000 and Acme’s Sporting Goods Division is currently using only 80% of this capacity.
Acme records the cost of unused capacity as a separate line item and not as a product cost.

——————————————————————————————————————————-

Answer the following questions for Evan. Be sure to show your work as well as your answers in the boxes below (the boxes will expand as your enter your work). Where necessary, round your answers to three places after the decimal point.

Calculate the budgeted setup cost per unit:

Budgeted setup cost per unit (Basketballs):

Budgeted setup cost per unit (Hockey Sticks):

Budgeted setup cost per unit (Baseball Gloves):

Calculate the budgeted equipment and maintenance cost per unit:

Budgeted equipment and maintenance cost per unit (Basketballs):

Budgeted equipment and maintenance cost per unit (Hockey Sticks):

Budgeted equipment and maintenance cost per unit (Baseball Gloves):

Calculate the budgeted production space cost per unit:

Budgeted production space cost per unit (Basketballs):

Budgeted production space cost per unit (Hockey Sticks):

Budgeted production space cost per unit (Baseball Gloves):

What is the budgeted cost of unused square footage capacity?

What is the budgeted total cost and the cost per unit of resources used to produce Basketballs, Hockey Sticks and Baseball Gloves? Complete the following table to show your answers:

	Basketballs	Hockey Sticks	Baseball Gloves	Totals
Direct materials
Direct manufacturing Labor
Total direct costs
Setup
Equip. & maint.
Factory rent
Total indirect costs
Total costs
Units
Total cost/unit

Why might excess square footage capacity be beneficial for Acme’s Sporting Goods Division?

A salesman from the Sewn Up Supply Company has proposed that Acme buy its new, more pliable leather stitching for use in manufacturing baseball gloves. This new material will reduce the time required for manually stitching the gloves from one hour to forty minutes per glove, which Evan estimates will decrease the budgeted direct manufacturing labor cost for baseball gloves to $130,000; increase the direct materials cost for baseball gloves to $525,000; and increase equipment & maintenance costs by $11,800 because the new stitching requires a special type of electronic needle that would be leased from and maintained by the Sewn Up Supply Company. All other things being equal, do you recommend that Acme decide to use this new stitching? Why or why not? Complete the following table and then write your response in the box provided.

	Total Costs Before New Stitching	Total Costs After New Stitching	Better/(Worse)? (and by how much?)
Direct materials
Direct mfg. labor
Total direct costs
Setup
Equip. & maint.
Factory rent
Total indirect costs
Total costs

Written Response:

Acme is considering sending its supervisors and staff to a regional seminar series that shares industry best practices about manufacturing process innovations. The cost of participation (an indirect fixed cost that Acme would allocate equally among its three product lines) is $30,000 but a colleague of one of the Acme executives told him that he had attended the same seminar series and learned about efficiencies that enabled him to increase his company’s production (i.e. number of units produced) by 5% without incurring any additional direct costs. If Acme experienced the same 5% increase in product quantity, what would be its new budgeted total cost and cost per unit of resources used to produce:

a. Basketballs

b. Hockey Sticks

c. Baseball Gloves

Do you recommend that Acme decide to pay to send its supervisors and staff to this seminar? Why or why not? Complete the below tables and write your response in the box provided.

Before the seminar:

	Basketballs	Hockey Sticks	Baseball Gloves	Total
Direct materials
Direct mfg. labor
Total direct costs
Setup
Equip. & maint.
Space rental
Total indirect costs
Total costs
Units
Total cost/unit

After the seminar:

	Basketballs	Hockey Sticks	Baseball Gloves	Total
Direct materials
Direct mfg. labor
Total direct costs
Setup
Equip. & maint.
Space rental
Seminar
Total indirect costs
Total costs
Units
Total cost/unit

Written Response:

Assignment #2: Recommend the Best Approach

Deliverable:

*1st Document: Completed Essential Concept and Equations Document. Template to be completed is attached to this email.

Word Count: 1000 plus solution as required.

In preparation for your work evaluating the product lines manufactured by the Sporting Goods Division, answer the following questions in the text boxes provided (Note: the boxes will expand as you type into them):

What is the Contribution Margin? What equation is used to determine the contribution margin per unit?

What is the Contribution Margin Approach to decisions? How does the contribution approach change how an income statement is structured?

What is the Contribution Margin Ratio and what equation is used to calculate it?

What is the Breakeven Point? What equations are used to calculate the breakeven point for a single product firm in units and in dollars?

What is the Margin of Safety and what equation is used to calculate it for both units and dollars?

What is Differential Analysis and how is it used to make management decisions?

*2nd Document: Completed Cost-Volume-Profit Analysis. Template to be completed is attached to this email.

Word Count: 1000 plus solution as required

Part I. Review the information that Evan provided to you in Project 1. He has now included additional information about the production and sale of 60,000 basketballs. Evan knows that the market price per basketball is $12.00 and the unit variable cost is $6.00.

Additional factors to consider:

Note: For purposes of this Project, assume that “Total direct costs” calculated in Project 1 are variable and “Total indirect costs” calculated in Project 1 are fixed.
Factory rent is paid per square foot.
Total available production square footage is 20,000 and Acme’s Sporting Goods Division is currently using only 80% of this capacity.
Acme records the cost of unused capacity as a separate line item and not as a product cost.

Acme Sporting Goods Division

Product Line Data

For the Year Ended December 31, 2015

Product	Units Manufactured	Contribution Margin /Unit	Actual Sales Units 2015	Projected Sales Units 2016
Basketballs	58,000	$6 per unit	60,000¹	70,000

Using the above information, answer the following questions. Be sure to show all of your calculations in the boxes provided.

Compute the contribution margin ratio for basketballs.

What is the breakeven point for the basketball product line in units?

What is the breakeven point for the basketball product line in dollars?

What is the total product line income for basketballs?

Part II. As Evan explained, Acme’s top management is contemplating adding baseball bats as a fourth product line for 2016. Similar machines are used to create basketballs and baseball bats. Examine the following projected 2016 operating income statement data from Evan for the baseball bat product line:

Units: 50,000 Bats

Revenues	$500,000
Cost of Goods Sold
Variable Manufacturing Costs	$275,000
Operating Costs
Variable Marketing Costs	$25,000
Fixed Setup Costs and Maintenance	$33,000
Fixed Maintenance Costs	$40,000
Fixed General and Administrative Costs	$15,000

With this information in mind, answer the following questions. Be sure to show all of your calculations in the boxes provided.

Calculate the 2016 contribution margin ratio, breakeven point in both units and dollars, and margin of safety in both units and dollars for bats assuming sales of 45,000 bats.

Contribution Margin Ratio:

Breakeven Point (in units and dollars):

Margin of Safety (in units and dollars):

Using the projected unit sales for 2016, explain how contribution margin and differential analysis would be used by Acme to determine whether the new product line of baseball bats should be pursued.

Comparing your analyses of the basketball and baseball bat product lines, do you recommend that the Sporting Goods Division double the number of basketballs produced at Acme OR add the production of baseball bats to Acme’s product line instead? Describe your findings and explain your rationale.

1 Note: Sales may exceed units manufactured due to available existing inventory.

Assignment #3: Prepare and Analyze Budget

Deliverable:

*Completed Data for Division’s Manufacturing Overhead Budget Document. The document to be completed is attached to this email.

Word Count: 1000 plus the solution and analysis as required

Part I.

Acme Widget Company is preparing its Master Budget for 2016 and Evan has asked you to create the Manufacturing Overhead Budget for the Sporting Goods Division. Once you have reviewed the Project resources and the below data, prepare the Manufacturing Overhead Budget for 2016 on page 2, showing quarterly data. Be sure to add the appropriate data to all of the gray boxes and properly express each figure in terms of units, dollars or direct labor hours (DLH). Please show all calculations in the table.

Sporting Goods Units to be produced (by Quarter):

Q1: 70,000

Q2: 60,000

Q3: 50,000

Q4: 80,000

Direct labor: 1 hour of direct labor is required to produce one unit

Variable overhead costs per direct labor hour:

Indirect materials	$0.80
Indirect labor	$1.20
Maintenance	$0.50

Fixed overhead costs per Quarter:

Supervisory salaries	$42,000
Depreciation	$16,000
Maintenance	$12,000

ACME SPORTING GOODS DIVISION

MANUFACTURING OVERHEAD BUDGET

FOR THE YEAR ENDED DECEMBER 31, 2016

	Q1	Q2	Q3	Q4	Year
DIRECT LABOR HOURS (DLH)

VARIABLE COSTS:
Indirect materials ($.80/DLH)
Indirect labor ($1.20/DLH)
Maintenance ($.50/DLH)
TOTAL VARIABLE COSTS

FIXED COSTS:
Supervisory salaries
Depreciation
Maintenance
TOTAL FIXED COSTS

MANUFACTURING OVERHEAD (MO)
MANUFACTURING OVERHEAD (MO)
MANUFACTURING OVERHEAD RATE PER DIRECT LABOR HOUR (MO/DLH)

Part II.

The Sporting Goods Division also uses a flexible budget for planning and budget preparation. For the month of August 2016, the monthly sales forecast is 15,000 units. Manufacturing overhead is based on machine hours. Evan would like you to prepare a Flexible Budget Report, assuming that the division used 6,000 machine hours during August 2016. Be sure to add the appropriate data to all of the gray boxes and properly express each figure. Please show all calculations in the table and in your answers to the questions on pages 5 and 6.

The projected sales price per unit is $9.50 and the following variable costs per unit are projected:

Direct materials $3.00

Direct labor $2.00

Variable manufacturing overhead costs per machine hour planned for August 2016:

Indirect labor $5.00

Indirect materials $2.50

Maintenance $0.50

Utilities $0.30

Fixed overhead costs per month:

Supervision $1,200

Insurance $400

Property taxes $600

Depreciation $1,800

Other notes to consider:

Acme believes it will operate in a normal range of 4,000 to 8,000 machine hours per month.
In August 2016, direct material costs were $41,250 and direct labor costs were $29,000 on sales of 14,750 units, or $135,000.
During the month of August 2016, the company incurred the following manufacturing overhead costs:

Indirect labor $28,000

Indirect materials $16,200

Maintenance $2,800

Utilities $1,900

Supervision $1,440

Insurance $400

Property taxes $600

Depreciation $1,860

ACME SPORTING GOODS DIVISION

MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT

FOR THE MONTH OF AUGUST 2016

	AUGUST 2016 BUDGET	AUGUST 2016 ACTUAL	AMOUNT OF VARIANCE	FAVORABLE (OR UNFAVORABLE) VARIANCE
Sales

Variable Costs:
Direct materials
Direct labor
Total Variable Costs

Contribution Margin

Manufacturing Overhead Costs:
Variable Costs:
Indirect labor
Indirect materials
Maintenance
Utilities
Total Variable Costs

Fixed Costs:
Supervision
Insurance
Property taxes
Depreciation
Total Fixed Costs

Total Costs

Budgeted Net Income

Answer the following questions regarding analysis of variance:

1. Referring to “Sales” in Acme’s MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT:

a. What was the Sales Variance, i.e., by how much were Acme’s August 2016 actual sales favorable or unfavorable to budget?

b. How much of the Sales Variance was due to selling fewer units than Acme planned to sell? You can determine this by calculating the Sales Volume Variance.

c. How much of the Sales Variance was due to selling each unit at a lower price than Acme planned to sell? You can determine this by calculating the Selling Price Variance.

2. Referring to “Variable Costs: Direct Materials” in Acme’s MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT:

a. What was the Direct Materials Variance, i.e., by how much were Acme’s August 2016

Direct Materials Costs favorable or unfavorable to budget?

b. How much of the Direct Materials Variance was due to selling fewer units than Acme

planned to sell? You can determine this by calculating the Direct Materials Quantity

Variance.

c. How much of the Direct Materials Variance was due to buying each unit at a higher

price than Acme planned to pay? You can determine this by calculating the Direct

Materials Price Variance.

3. Referring to “Variable Costs: Direct Labor” in Acme’s MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT:

a. What was the Direct Labor Variance, i.e., by how much were Acme’s August 2016

Direct Labor Costs favorable or unfavorable to budget?

b. How much of the Direct Labor Variance was due to selling fewer units than Acme

planned to sell? You can determine this by calculating the Labor Efficiency Variance.

c. How much of the Direct Labor Variance was due to paying a lower hourly rate than

Acme planned to pay? You can determine this by calculating the Direct Labor Rate

Variance.

ANSWER

Assignment 1

Evan Exert has approached you with the following activity-based costing information and corresponding questions. Read through the information and then respond to the questions below.

Acme Sporting Goods Division

Budgeted Costs and Activities

For the Year Ended December 31, 2015

Direct materials—Basketballs	$168,100
Direct materials—Hockey Sticks	303,280
Direct materials—Baseball Gloves	505,280
TOTAL	$976,660

Direct manufacturing labor—Basketballs	$111,800
Direct manufacturing labor—Hockey Sticks	100,820
Direct manufacturing labor—Baseball Gloves	150,820
TOTAL	$363,440

Other Indirect Fixed Costs

Setup $ 257,500

Equipment and maintenance costs 215,200

Factory rent 310,000

Total $ 782,700

Additional Budget Information

Product quantity

Basketballs 58,000

Hockey Sticks 85,000

Baseball Gloves 100,000

Number of batches (cost driver)

Basketballs 450

Hockey Sticks 300

Baseball Gloves 600

Machine hours (cost driver)

Basketballs 13,500

Hockey Sticks 10,500

Baseball Gloves 15,000

Square footage of production space used (cost driver)

Basketballs 3,200

Hockey Sticks 5,000

Baseball Gloves 7,800

Factors to consider:

Number of batches is the cost driver for setup costs.
Number of machine hours is the cost driver for equipment and maintenance costs.
Factory rent is paid per square foot.
Total available factory square footage is 20,000 and Acme’s Sporting Goods Division is currently using only 80% of this capacity.
Acme records the cost of unused capacity as a separate line item and not as a product cost.

——————————————————————————————————————————-

Calculate the budgeted setup cost per unit:

Budgeted setup cost per unit (Basketballs):

Budgeted set up cost for Basket ball=(Set up Cost/ Total no. of batches)*Batches for basketball

=257500/(450+300+600)*450

=85833.33

Budgeted setup cost per unit(Basket Ball)=Budgeted set up cost for basket ball/Units of Basket Ball

85833/58000=1.479

Budgeted setup cost per unit (Hockey Sticks):

Budgeted set up cost for Hockey Sticks=(Set up Cost/ Total no. of batches)*Batches for Hockey sticks

=257500/(450+300+600)*300

=57222.22

Budgeted setup cost per unit(Hockey sticks)=Budgeted set up cost for Hockey stick/Units of Hockey Sticks

=57222.22/85000

=0.673

Budgeted setup cost per unit (Baseball Gloves):

Budgeted set up cost for Baseball Gloves=(Set up Cost/ Total no. of batches)*Batches for

Baseball Gloves

=257500/(450+300+600)*600

=114444.44

Budgeted setup cost per unit(Baseball Gloves)=Budgeted set up cost for Baseball Gloves/Units of Baseball Gloves

=114444.44/100000

=1.144

(cfaresources, n.d.)

Calculate the budgeted equipment and maintenance cost per unit:

Budgeted equipment and maintenance cost per unit (Basketballs):

Budgeted equipment and maintenance cost (Basketballs)=(Equipment and maintenance cost/Total no. of machine hours)*Machine hours in Basketballs

=215200/(13500+10500+15000)*13500

=74492.31

Budgeted equipment and maintenance cost per unit (Basketballs)=

= Budgeted equipment and maintenance cost (Basketballs)/no. of Basketball units

=74492.31/58000

=1.284

Budgeted equipment and maintenance cost per unit (Hockey Sticks):

Budgeted equipment and maintenance cost (Hockey Sticks)=(Equipment and maintenance cost/Total no. of machine hours)*Machine hours in Hockey Sticks

=215200/(13500+10500+15000)*10500

=57938.46

Budgeted equipment and maintenance cost per unit (Hockey Sticks)= Budgeted equipment and maintenance cost (Hockey Sticks)/Total No. of Hockey sticks

=57938.46/85000

=0.682

Budgeted equipment and maintenance cost per unit (Baseball Gloves):

Budgeted equipment and maintenance cost (Basket Ball Gloves)=(Equipment and maintenance cost/Total no. of machine hours)*Machine hours in Basket Ball gloves

=215200/(13500+10500+15000)*15000

=82769.23

Budgeted equipment and maintenance cost per unit (Basket Ball Gloves)=

=Budgeted equipment and maintenance cost (Basket Ball Gloves)/Total No. of Basket Ball Gloves

= 82769.23/100000

=0.828

Calculate the budgeted production space cost per unit:

Total Factory Rent=310000

Rent for used space=310000*80%

=248000

Budgeted production space cost per unit (Basketballs):

Budgeted production space cost (Basketballs)=Rent for used space/Total space used)*Square foot sapce used by Basket ball

=248000/(3200+5000+7800)*3200

=49600

Budgeted production space cost per unit (Basketballs)=

=Budgeted production space cost (Basketballs)/Total no. of Basket balls

=49600/58000

=0.855

Budgeted production space cost per unit (Hockey Sticks):

Budgeted production space cost (Hockey Sticks)= Rent for used space/Total space used)*Square foot space used by Hockey sticks

=248000/(3200+5000+7800)*5000

=77500

Budgeted production space cost per unit (Hockey Sticks)= Budgeted production space cost (Hockey sticks/Total no. of Hockey sticks)

=77500/85000

=0.912

Budgeted production space cost per unit (Baseball Gloves):

Budgeted production space cost (Baseball Gloves)= Rent for used space/Total space used)*Square foot space used by Base ballGloves

=248000/(3200+5000+7800)*7800

=120900

Budgeted production space cost per unit (Base Ball Gloves)=

=Budgeted production space cost(baseball gloves)/Total no. of Base ball Gloves

=120900/100000

=1.209

(cfaresources, n.d.)

What is the budgeted cost of unused square footage capacity?

Budgeted cost of unused square footage capacity=total rent* unused space

=310000*(1-80%)

=62000

What is the budgeted total cost and the cost per unit of resources used to produce Basketballs, Hockey Sticks and Baseball Gloves? Complete the following table to show your answers:

	Basketballs	Hockey Sticks	Baseball Gloves	Totals
Direct materials	168100	303280	505280	976660
Direct manufacturing Labor	111800	100820	150820	363440
Total direct costs	279900	404100	656100	1340100
Setup	85833.33	57222.22	114444.44	257500
Equip. & maint.	74492.31	57938.46	82769.23	215200
Factory rent	49600	77500	120900	248000
Total indirect costs	209925.643	192660.68	318113.7	720700
Total costs	489825.6430	596760.68	974213.7	2060800
Units	58000	85000	100000
Total cost/unit	8.445	7.021	9.742

(cfaresources, n.d.)

Why might excess square footage capacity be beneficial for Acme’s Sporting Goods Division?

Excess square footage capacity can be used for increasing the production of any of the departments .So, the profitability of the organisation as a whole will increase.

A salesman from the Sewn Up Supply Company has proposed that Acme buy its new, more pliable leather stitching for use in manufacturing baseball gloves.This new material will reduce the time required for manually stitchingthe gloves from one hour to forty minutes per glove, which Evan estimates will decrease the budgeted direct manufacturing labor cost for baseball gloves to $130,000; increase the direct materials cost for baseball gloves to $525,000; and increase equipment & maintenance costs by $11,800 because the new stitching requires a special type of electronic needle that would be leased from and maintained by the Sewn Up Supply Company. All other things being equal, do you recommend that Acme decide to use this new stitching? Why or why not? Complete the following table and then write your response in the box provided.

	Total Costs Before New Stitching	Total Costs After New Stitching	Better/(Worse)? (and by how much?)
Direct materials	505280	525000	Worse 19720
Direct mfg. labor	150820	130000	Better 20820
Total direct costs	656100	655000	Better 1100
Setup	114444.44	114444.44	—
Equip. & maint.	82769.23	94569.23	Worse 11800
Factory rent	120900	120900	—
Total indirect costs	318113.7	329913.7	Worse 11800
Total costs	974213.7	984913.7	Worse 10699.97

Written Response:

Proposal for buying the new leather stitching is not viable. As we can see from the above table that it leads to increase in total cost by 10699.97.

Hence, it is advisable not to use New Stitching

(cfaresources, n.d.)

Acme is considering sending its supervisors and staff to a regional seminar series that shares industry best practices about manufacturing process innovations. The cost of participation (an indirect fixed cost that Acme would allocate equally among its three product lines) is $30,000 but a colleague of one of the Acme executives told him that he had attended the same seminar series and learned about efficiencies that enabled him to increase his company’s production (i.e. number of units produced) by 5% without incurring any additional direct costs. If Acme experienced the same 5% increase in product quantity, what would be its new budgeted total cost and cost per unit of resources used to produce:

a. Basketballs

b. Hockey Sticks

c. Baseball Gloves

Do you recommend that Acme decide to pay to send its supervisors and staff to this seminar? Why or why not? Complete the below tables and write your response in the box provided.

Before the seminar:

	Basketballs	Hockey Sticks	Baseball Gloves	Total
Direct materials	168100	303280	505280	976660
Direct mfg. labor	111800	100820	150820	363440
Total direct costs	279900	404100	656100	1340100
Setup	85833.33	57222.22	114444.44	257500
Equip. & maint.	74492.31	57938.46	82769.23	215200
Space rental	49600	77500	120900	248000
Total indirect costs	209925.643	192660.68	318113.7	720700
Total costs	489825.643	596760.68	974213.7	2060800
Units	58000	85000	100000
Total cost/unit	8.445	7.021	9.742

After the seminar:

	Basketballs	Hockey Sticks	Baseball Gloves	Total
Direct materials	168100	303280	505280	976660
Direct mfg. labor	111800	100820	150820	363440
Total direct costs	279900	404100	656100	1340100
Setup	85833.33	57222.22	114444.44	257500
Equip. & maint.	74492.31	57938.46	82769.23	215200
Space rental	49600	77500	120900	248000
Seminar	10000	10000	10000	30000
Total indirect costs	219925.643	202660.68	328113.7	750700
Total costs	499825.643	606760.68	984213.7	2090800
Units	60900	89250	105000
Total cost/unit	8.207	6.798	9.373

Written Response:

It is recommended to Acme to send its supervisor to seminar .As it will increase production by 5% which leads to reduction in per unit cost of Basket ball , Hockey sticks, Base ball gloves

References

http://cfaresources.s3.amazonaws.com/BA%20Management/Investigate%20Managerial%20Accounting/Saylor%20Managerial%20Accounting%20-%20Chapters%201%203%20and%205.pdf. [Online].

Assignment 2

What is the Contribution Margin? What equation is used to determine the contribution margin per unit?

Contribution margin is also known as contribution per unit. It is the difference between selling price and variable cost of a product

Contribution= Sale – Variable cost

(Squareup, n.d.)

What is the Contribution Margin Approach to decisions? How does the contribution approach change how an income statement is structured?

Contribution Margin Approach is a presentation format under which all variable cost are deducted from the revenue and contribution is calculated.

From contribution margin all the fixed costs are deducted and profit or loss is calculated.

Revenue XXX

Less:Variable Cost XXX

=Contribution Margin XXX

Less:Fixed Cost XXX

=Net Profit/Loss XXX

(Squareup, n.d.)

What is the Contribution Margin Ratio and what equation is used to calculate it?

Contribution Margin Ratio is percentage of contribution over revenue.

Contribution margin ratio=Contribution/ Price

(Squareup, n.d.)

What is the Breakeven Point? What equations are used to calculate the breakeven point for a single product firm in units and in dollars?

Breakeven point is a situation where total cost is equal to total revenue. It is a point where firm neither have profit not incur loss.

(Squareup, n.d.)

Breakeven(Units)= Fixed cost/(Revenue per unit-Variable cost per unit)

Breakeven in dollars= Breakeven in units * Sale price per unit

What is the Margin of Safety and what equation is used to calculate it for both units and dollars?

Margin of safety is the sales over and above the breakeven point.

Margin of safety(units)= Actual no. of unit sold – Breakeven units

Margin of Safety(Dollar)= Actual Sale value- Breakeven value

(saylordotorg, n.d.)

What is Differential Analysis and how is it used to make management decisions?

Differential Analysis is a technique which represents the difference in revenues and costs among the all possible course of action.

It help management in taking the right decision by making analysis of all available course of action by calculating difference in revenue in actions available and calculating difference in cost in different available actions.

(saylordotorg, n.d.)

(CFAResources, n.d.)

Additional factors to consider:

Note: For purposes of this Project, assume that “Total direct costs” calculated in Project 1 are variable and “Total indirect costs” calculated in Project 1 are fixed.
Factory rent is paid per square foot.
Total available production square footage is 20,000 and Acme’s Sporting Goods Division is currently using only 80% of this capacity.
Acme records the cost of unused capacity as a separate line item and not as a product cost.

Acme Sporting Goods Division

Product Line Data

For the Year Ended December 31, 2015

Product	Units Manufactured	Contribution Margin /Unit	Actual Sales Units 2015	Projected Sales Units 2016
Basketballs	58,000	$6 per unit	60,000¹	70,000

Using the above information, answer the following questions. Be sure to show all of your calculations in the boxes provided.

Compute the contribution margin ratio for basketballs.

Contribution margin ratio= (Total revenue – Variable cost)/Revenue

Total revenue= No of unit sold* Selling price

=60000*12

=720000

Variable cost= No of unit sold*Variable cost

=60000*6

=360000

Contribution margin ratio= (720000-360000)/720000

=0.5

(Pearson, n.d.)

What is the breakeven point for the basketball product line in units?

Break even point in units(Basketball)

= Fixed cost/( Revenue per unit- Variable cost per unit)

=209925.643/(12-6)

=34987.61 units

=34988 units

What is the breakeven point for the basketball product line in dollars?

Breakeven Point in dollar( Basket Ball)

=Breakeven in units* price per unit

=34988*12

=419856

What is the total product line income for basketballs?

Income for Basketballs =

Revenue= 720000

-Variable cost=360000

Contribution=360000

-Fixed Cost=209925.6

Income=150074.

Part II.As Evan explained, Acme’s top management is contemplating adding baseball bats as a fourth product line for 2016. Similar machines are used to create basketballs and baseball bats. Examine the following projected 2016 operating income statement data from Evan for the baseball bat product line:

Units: 50,000 Bats

Revenues	$500,000
Cost of Goods Sold
Variable Manufacturing Costs	$275,000
Operating Costs
Variable Marketing Costs	$25,000
Fixed Setup Costs and Maintenance	$33,000
Fixed Maintenance Costs	$40,000
Fixed General and Administrative Costs	$15,000

With this information in mind, answer the following questions. Be sure to show all of your calculations in the boxes provided.

Calculate the 2016 contribution margin ratio, breakeven point in both units and dollars, and margin of safety in both units and dollars for bats assuming sales of 45,000 bats.

Contribution Margin Ratio:

=(Sale-Variable cost)/ Sale

=(500000-(275000+25000))/500000

=(500000-300000)/500000

=0.4

Breakeven Point (in units and dollars):

Breakeven point in dollar= Fixed cost/ contribution margin ratio

=(33000+40000+15000)/0.4

=88000/0.4

=220000

Breakeven in unit= Breakeven in Dollar/Selling price

=220000/100

=22000Units

Selling Price per unit=500000/50000=10

Margin of Safety (in units and dollars):

Margin of Safety(units)= Actual Sale- Breakeven sale

=45000-22000

=23000

Margin of safety(in dollar)=Margin of safety in unit* selling price

=23000*10

=230000

Using the projected unit sales for 2016, explain how contribution margin and differential analysis would be used by Acme to determine whether the new product line of baseball bats should be pursued.

Differential Analysis

Particular	Alt-1 Basket Ball	Alt-2 Baseball Bat	Difference	Alt 1 is
Units	70000	50000
Revenue	840000	500000	340000	Higher
Variable cost	420000	300000(275000+25000)	120000	Higher
Contribution	420000	200000	220000	Higher
Fixed cost	209925.64	88000( 33000+40000+15000)	121925.64	Higher
Income	210074.36	112000	98074.36	Higher

Comparing your analyses of the basketball and baseball bat product lines, do you recommend that the Sporting Goods Division double the number of basketballs produced at Acme OR add the production of baseball bats to Acme’s product line instead? Describe your findings and explain your rationale.

From the above table we can see that the production of Basket ball is more profitable as compare to production of baseball bat. As the income from the Basketball production is higher than the Baseball Bat alternative

Thus it is advisable to double the production of Basketball.

(Resouces, n.d.)

References

Pearson, n.d. http://www.pearsoncanada.ca/media/highered-showcase/multi-product-showcase/horngren-ch03.pdf. [Online].

Resouces, C., n.d. http://cfaresources.s3.amazonaws.com/BA%20Management/Investigate%20Managerial%20Accounting/Saylor%20Managerial%20Accounting%20-%20Chapters%205%206%20and%207.pdf. [Online].

1 Note: Sales may exceed units manufactured due to available existing inventory.

Assignment 3

Part I.

Sporting Goods Units to be produced (by Quarter):

Q1: 70,000

Q2: 60,000

Q3: 50,000

Q4: 80,000

Direct labor: 1 hour of direct labor is required to produce one unit

Variable overhead costs per direct labor hour:

Indirect materials	$0.80
Indirect labor	$1.20
Maintenance	$0.50

Fixed overhead costs per Quarter:

Supervisory salaries	$42,000
Depreciation	$16,000
Maintenance	$12,000

ACME SPORTING GOODS DIVISION

MANUFACTURING OVERHEAD BUDGET

FOR THE YEAR ENDED DECEMBER 31, 2016

	Q1	Q2	Q3	Q4	Year
DIRECT LABOR HOURS (DLH)	70000	60000	50000	80000	260000

VARIABLE COSTS:
Indirect materials ($.80/DLH)	56000	48000	40000	64000	208000
Indirect labor ($1.20/DLH)	84000	72000	60000	96000	312000
Maintenance ($.50/DLH)	35000	30000	25000	40000	130000
TOTAL VARIABLE COSTS	175000	150000	125000	200000	650000

FIXED COSTS:
Supervisory salaries	42000	42000	42000	42000	168000
Depreciation	16000	16000	16000	16000	64000
Maintenance	12000	12000	12000	12000	48000
TOTAL FIXED COSTS	70000	70000	70000	70000	280000

MANUFACTURING OVERHEAD (MO)	245000	220000	195000	270000	930000
MANUFACTURING OVERHEAD (MO)	245000	220000	195000	270000	930000
MANUFACTURING OVERHEAD RATE PER DIRECT LABOR HOUR (MO/DLH)					=930000/260000 =3.58

(Larry.M.Walther, n.d.)

Part II.

The projected sales price per unit is $9.50 and the following variable costs per unit are projected:

Direct materials $3.00

Direct labor $2.00

Variable manufacturing overhead costs per machine hour planned for August 2016:

Indirect labor $5.00

Indirect materials $2.50

Maintenance $0.50

Utilities $0.30

Fixed overhead costs per month:

Supervision $1,200

Insurance $400

Property taxes $600

Depreciation $1,800

Other notes to consider:

Acme believes it will operate in a normal range of 4,000 to 8,000 machine hours per month.
In August 2016, direct material costs were $41,250 and direct labor costs were $29,000 on sales of 14,750 units, or $135,000.
During the month of August 2016, the company incurred the following manufacturing overhead costs:

Indirect labor $28,000

Indirect materials $16,200

Maintenance $2,800

Utilities $1,900

Supervision $1,440

Insurance $400

Property taxes $600

Depreciation $1,860

ACME SPORTING GOODS DIVISION

MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT

FOR THE MONTH OF AUGUST 2016

	AUGUST 2016 BUDGET	AUGUST 2016 ACTUAL	AMOUNT OF VARIANCE	FAVORABLE (OR UNFAVORABLE) VARIANCE
Sales	142500 (15000*9.5)	135000	7500	unfavorable

Variable Costs:
Direct materials	45000 (15000*3)	41250	3750	Favorable
Direct labor	30000 (15000*2)	29000	1000	Favorable
Total Variable Costs	75000	70250	4750	Favorable

Contribution Margin	67500	64750	2750	Unfavorable

Manufacturing Overhead Costs:	75000	70250	4750	Favorable
Variable Costs:
Indirect labor	30000	28000	2000	Favorable
Indirect materials	15000	16200	-1200	Unfavorable
Maintenance	3000	2800	200	Favorable
Utilities	1800	1900	-100	Unfavorable
Total Variable Costs	49800	48900	900	Favorable

Fixed Costs:
Supervision	1200	1440	-240	Unfavorable
Insurance	400	400	0	Nil
Property taxes	600	600	0	Nil
Depreciation	1800	1860	-60	Unfavorable
Total Fixed Costs	4000	4300	-300	Unfavorable

Total Costs	128800	123450	5350	Favorable

Budgeted Net Income	13700	11550	2150	Unfavorable

Answer the following questions regarding analysis of variance:

1. Referring to “Sales” in Acme’s MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT:

a. What was the Sales Variance, i.e., by how much were Acme’s August 2016 actual sales favorable or unfavorable to budget?

Sales Variance is the difference between actual sale and budgeted sale.

Sale variance= Actual Sale- Budgeted sale

=135000-142500

=7500 Unfavorable

b. How much of the Sales Variance was due to selling fewer units than Acme planned to sell? You can determine this by calculating the Sales Volume Variance.

Sales volume variance=( Actual quantity – Budgeted quantity)* budgeted selling price

=(135000-142500)*9.5

=71250 Unfavorable

71250 of the sales variance is because of selling fewer units of a commodity.

c. How much of the Sales Variance was due to selling each unit at a lower price than Acme planned to sell? You can determine this by calculating the Selling Price Variance.

Selling price variance=Actual sales revenue- actual sales at budgeted price

=135000-(14750*9.5)

=-5125(unfavorable)

5125 of Sales variance was due to selling units at a price lower than budgeted price.

2. Referring to “Variable Costs: Direct Materials” in Acme’s MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT:

a. What was the Direct Materials Variance, i.e., by how much were Acme’s August 2016

Direct Materials Costs favorable or unfavorable to budget?

Direct material Variance= actual direct material cost- budgeted direct material cost

=41250-45000

=3750 favorable

Direct material variance is favorable to the budget as the actual direct material cost incurred is lower than the budgeted cost.

b. How much of the Direct Materials Variance was due to selling fewer units than Acme

planned to sell? You can determine this by calculating the Direct Materials Quantity

Variance.

Unit less sold= 250

Budgeted price per unit of direct material= $ 3

Direct material Variance due to less unit sold= 250 x $3= $ 750 less paid

c. How much of the Direct Materials Variance was due to buying each unit at a higher

price than Acme planned to pay? You can determine this by calculating the Direct

Materials Price Variance.

Direct material Price Variance= (Actual price- Budgeted Price)x Actual Quantity

=(41250/14750-3)x14750

= 3000 less paid.

3. Referring to “Variable Costs: Direct Labor” in Acme’s MONTHLY OVERHEAD FLEXIBLE BUDGET REPORT:

a. What was the Direct Labor Variance, i.e., by how much were Acme’s August 2016

Direct Labor Costs favorable or unfavorable to budget?

Direct labour variance= Actual Labor cost- budgeted labor cost

= 30000-29000= 1000 Favorable

b. How much of the Direct Labor Variance was due to selling fewer units than Acme

planned to sell? You can determine this by calculating the Labor Efficiency Variance.

Units less produced= 250

Budgeted labour rate= $2

Labour Efficiency variance= 250 x $2 =$ 500

c. How much of the Direct Labor Variance was due to paying a lower hourly rate than

Acme planned to pay? You can determine this by calculating the Direct Labor Rate

Variance.

Labor Rate Variance= (Actual Labour rate- Budgted labor rate) X Actual units

==(29000/14750-30000/15000)x14750= 500 Favorable (Less paid)

(Resources, n.d.)

References

Larry.M.Walther, n.d. https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/budgeting-and-decision-making.pdf. [Online].

Resources, C., n.d. http://cfaresources.s3.amazonaws.com/BA%20Management/Investigate%20Managerial%20Accounting/Saylor%20Managerial%20Accounting%20-%20Chapters%209-10.pdf. [Online].

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