Zippy, Inc., is a concept to use. The G36 motoroyes overhead costs for 2014 are

Question

Zippy, Inc., is a concept to use. The G36 motoroyes overhead costs for 2014 are estimated at $5,940,000. Zippy, Inc, uses subassembly operators that provide component parts. The folowing are the r-level options that of six motorcycles per shift, and a 360-day year2x6x360 4,320 unavoidable interruptiors, breakdowns, and so fort- on two shifts b. Practical c. Normal capacity apaoy adjusted -2 × 5x 320-3.200. at 2,700 units. 2. What are the to Zippy, Inc., of using ether answers to two decimal places.) Budgeted fixed Denominator level manufacturing Practical 1 between re supply of capoty the demand for- ty This infrmation Enter any number in the edit fields and then continue to the next question 2 0

Explanation / Answer

1 Denominator Level Capacity Concept Budgeted Fixed Manufacturing Overhead per Period Budgeted Capacity Level Budgeted Fixed Manufacturing Overhead Cost Rate Theoretical $5,940,000 4320 $1,375 Practical $5,940,000 3200 $1,856 Normal $5,940,000 2700 $2,200 Master-budget $5,940,000 3000 $1,980 2 Volume variances that arise from use of Theoretical or Practical will signal divergence between supply of capacity and the demand for capacity. - useful input to managers - Fixed OH costs are ‘lumpy’ 3 Cost-based pricing: Negative aspects: MBV leads to high prices when demand is low – further eroding demand (downward demand spiral) MBV leads to low prices when demand is high – forgoing profits Positive aspects: Cost is based on demand and this price would be necessary to recover the costs…. MBV is a good benchmark for evaluating performance..

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