Ace Production Co. has two production departments, Fabricating and Assembling. A
ID: 2589475 • Letter: A
Question
Ace Production Co. has two production departments, Fabricating and Assembling. At a department managers' meeting, the controller uses flexible budget graphs to explain total budgeted costs. Separate graphs based on direct labor hours are used for each department. The graphs show the following.
2. At normal capacity of 100,000 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $360,000 in the Fabricating Department, and $290,000 in the Assembling Department.
State the total budgeted cost formula for each department.
Fabricating Department: $___________ + $___________ Per direct labor hour
Assembling Department: $___________ + $___________ Per direct labor hour
1. At zero direct labor hours, the total budgeted cost line and the fixed cost line intersect the vertical axis at $100,000 in the Fabricating Department, and $80,000 in the Assembling Department.2. At normal capacity of 100,000 direct labor hours, the line drawn from the total budgeted cost line intersects the vertical axis at $360,000 in the Fabricating Department, and $290,000 in the Assembling Department.
State the total budgeted cost formula for each department.
Fabricating Department: $___________ + $___________ Per direct labor hour
Assembling Department: $___________ + $___________ Per direct labor hour
Explanation / Answer
Fabricating Department: $100,000 + $2.60 per direct labor hour
Assembling Department: $80,000 + $2.10 per direct labor hour
Working:
Fabrication Department:
Fixed cost = $100,000
Total cost at 100,000 direct labor hours = $360,000
Variable cost = $360,000 - $100,000 = $260,000
Variable cost per direct labor hour = $260,000 / 100,000 = $2.60
Assembling Department:
Fixed cost = $80,000
Total cost at 100,000 direct labor hours = $290,000
Variable cost = $290,000 - $80,000 = $210,000
Variable cost per direct labor hour = $210,000 / 100,000 = $2.10
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