AE10-15 Flexible Budget [LO 2,3] Expected manufacturing costs for Imperial Data

Question

AE10-15

Flexible Budget [LO 2,3]
Expected manufacturing costs for Imperial Data Devices are as follows:


Variable Costs Fixed Costs per Month
Direct material $7.50/unit Supervisory salaries $21,000
Direct labor 4.00/unit Factory depreciation 11,000
Variable overhead 1.90/unit Other factory costs 3,300



AP7-2 (a,b)


Incremental Analysis of Outsourcing Decision [LO 1, 2, 4]

Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from Highline Grounds Maintenance for $304,100 per year. Highline states that its bid will cover all services and planting materials required to "keep Oakland's grounds in a condition comparable to prior years." Oakland's cost for grounds maintenance in the preceding year were $313,040 as follows:

Salary of three full-time gardeners $195,530
Plant materials 85,990
Fertilizer 8,150
Fuel 9,130
Depreciation of tractor, mowers, and other
miscellaneous equipment 14,240
Total $313,040

If Oakland College outsources maintenance, it will be able to sell equipment for $31,230, and the three gardeners will be laid off.

Analyze the one-year financial impact of outsourcing grounds maintenance. $__________


Estimate manufacturing costs for production levels of 13,000 units, 16,000 units, and 18,500 units per month.


13,000 units $ ___________
16,000 units $ ____________
18,500 units $ ___________




P11-12

Setting Standards and Assigning Responsibility for Variances [LO 1]

Recycled Plastics, Inc. manufactures a plastic dimensional lumber product from recycled plastic milk jugs. The company purchases consumer-recycled milk jugs in 700-pound bales and then shreds them into small pieces in its grinding department. Once ground, the plastic pieces are mixed in a hopper and extruded into shaped boards in the extrusion department. When the boards are cooled, they are used much as wood lumber would be used to build picnic tables and park benches in the fabrication department.
Recycled Plastics, Inc. has grown from a small 5-person operation to a company employing more than 100 people. The company also contains a sales department, an accounting department, an administration department, and a purchasing department. The president and owner of the company, Alan Roberts, would like to institute a standard cost system; at this point, he has been setting prices based on his rough pen-and-paper estimates of costs.


1. What standards could be set within each of the three production departments of the company? How should standards be set? Who should be involved in setting the standards?



2. What benefits might Recycled Plastics, Inc. receive from adopting a standard costing system? What disadvantages or problems might arise from adopting a standard costing system?

Explanation / Answer

Outsourcing grounds maintenance cost of the current year is less than the preceding year cost. Hence, it is profitable. Oakland has received a bid from Highline Grounds Maintenance for $295,000 per year. Oakland's cost for grounds maintenance in the preceding year were $302,000.The impact of outsourcing grounds maintenance is ($302,000 - 295,000=$7,000) Second year: Won’t have the 31230 from the sale – so savings will decrease by 31230 2nd year. Continue Eliminate Net Income (increase or decrease) Contribution Margin 308,600 0 -308,600 Direct Salaries 66900 0 66900 Total 241,700 0 -241,700 loss of 241,700 is too much.

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