An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Att
ID: 2564470 • Letter: A
Question
An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Attack Brownies” (CAB) in their online catalog. CAB will be sold in square tins and captioned with personal greetings. Jordan negotiated a selling price to Yumminess at $10 per tin.
You, using your accounting knowledge, had previously budgeted a cost of $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.
After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.
Jordan wants you to calculate a flexible manufacturing overhead budget assuming an annual level of 230,000 units instead of 200,000.
1. What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.)
2. What would be total fixed manufacturing overhead costs for this new level? (Round to the nearest dollar.)
3. Taylor asks you if flexible budgets can be calculated on a monthly basis. You state, “Of course! Let’s create a monthly manufacturing overhead flexible budget for 20,000 units. Please pass me the brownies!” What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.)
4. Taylor asks you if flexible budgets can be calculated on a monthly basis. You state, “Of course! Let’s create a monthly manufacturing overhead flexible budget for 20,000 units. Please pass me the brownies!” What would be total fixed manufacturing overhead costs for this new level? (Round to the nearest dollar.)
5. Given an annual master budget of 200,000 units with actual production of 210,000 units, you have been tasked to formulate a flexible budget report. What will be total manufacturing overhead costs at the budget level?
Explanation / Answer
1.
Calculation of total variable manufacturing overhead
Particulars
Amount
Direct Materials
6
Direct labor
1.5
Manufacturing overhead per tin
(100000*8.5%)/200000 tins
0.425
Operating expenses per tin
0.08
Total variable cost per tin
8.005
Total overhead manufacturing
Total variable manufacturing overhead at this new level=0.425 per tin x 230000 tins
=$97750
Total variable operating costs at the new below
= 0.08 per tin x 230000
=$18400
2.
Total fixed manufacturing overhead for 230000 units
Fixed manufacturing overhead for 200000 units=$100000-$85000=$15000
This is fixed for all level of production
Hence, Fixed manufacturing overhead for 230000 units=$15000
3.
Total variable manufacturing overhead for 20000 units
Variable manufacturing overhead per unit=$0.425 per unit
For 20000 units
Variable manufacturing overhead=20000*$0.425=$8500
4.
Total fixed manufacturing overhead for 230000 units=$15000
This is fixed for all level of production
This is based on annual production. Let’s change this figure into monthly by dividing 12
Hence, Fixed manufacturing overhead for 20000 units=$15000/12=$1250
5.
Total manufacturing overhead at the Budgeted level of 200000 units
Variable manufacturing overhead=200000 units*$0.425=$85000
Fixed manufacturing overhead=15000
Total manufacturing overhead=$85000+$15000=$100000
Total manufacturing overhead at the Budgeted level of 230000 units
Variable manufacturing overhead=230000 units*$0.425=$97750
Fixed manufacturing overhead=15000
Total manufacturing overhead=$97750+$15000=$112750
Particulars
Amount
Direct Materials
6
Direct labor
1.5
Manufacturing overhead per tin
(100000*8.5%)/200000 tins
0.425
Operating expenses per tin
0.08
Total variable cost per tin
8.005
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