# Determining Manufacturing Overhead Cost-Accounting Assignment Sample

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

 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.

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

1. 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):

1. 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):

1. 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):

1. What is the budgeted cost of unused square footage capacity?

1. 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

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

1. 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:

1. 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:

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):

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

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

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

1. What is the Breakeven Point? What equations are used to calculate the breakeven point for a single product firm in units and in dollars?
1. What is the Margin of Safety and what equation is used to calculate it for both units and dollars?

1. 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.

• 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.

1. Compute the contribution margin ratio for basketballs.
1. What is the breakeven point for the basketball product line in units?
1. What is the breakeven point for the basketball product line in dollars?
1. 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.

1. 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):
1. 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.
1. 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

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

ACME SPORTING GOODS DIVISION

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 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

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

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.

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

 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.

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

1. 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.)

1. Calculate the budgeted equipment and maintenance cost per unit:

1. 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.)

1. 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

1. 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.)

1. 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.

1. 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.)

1. 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:

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

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):

1. 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.)

1. 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.)

1. 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.)

1. 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
1. 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.)

1. 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.)

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.

• 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.

1. 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.)
1. 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
1. 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
1. 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.

1. 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
1. 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
1. 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

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.

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

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

ACME SPORTING GOODS DIVISION

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 RATE PER DIRECT LABOR HOUR (MO/DLH) =930000/260000 =3.58

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

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 answersto 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

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

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