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Objectives: 1) Apply accounting manufacturing concepts to an actual product to solidify the learning process

Accounting

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Objectives:

1) Apply accounting manufacturing concepts to an actual product to solidify the learning process.

2.         Learn how all the numbers fit together.

 

3.         Develop decision-making analysis techniques.

 

 

Manufacturing Questions Instructions:

1. This project should stand by itself.  Include the questions with your submission--not just the answers.  Identify all numbers.  Points will be deducted if I cannot understand what you are answering.
2. You may use Excel to complete tables and/or answer questions.  Just make sure you label your work and turn the Excel file in.
3. You may discuss this project with classmates.  A discussion board is available to discuss the project.  Try to get help from classmates first.  Your professor will only provide limited individual help, but will monitor the discussion board to make sure advice is on the right path
4. You can also print, hand write the answers, and submit a scanned copy

 

Your information:

 

1. Your company produces boxed cereal. There are three main processes used to make the cereal.  The first process preps and shapes the corn into flakes.  The second process bakes and seasons the corn flakes.  The third process packages the cereal.  The cereal sold in 36 oz boxes (1 box is a unit)

 

2. Information on the direct materials is listed in table 1. Consider this information the standard.    Direct labor information given in Table 2.  Consider this information the standard. 

 

3. Annual overhead information is given in Table 3. Overhead is allocated based direct labor hours.  Estimated annual direct labor hours are 12,336. Calculate a predetermined OH rate (round to two decimal places if needed).  Use this rate when you need to apply OH.

 

4. Table 4 gives you the information for the last two months on the overhead cost.  Use this information to determine the fixed and variable portions of the cost.  (You will need this information to complete Table 5). Machine hours have been determined as the best cost driver for separating mixed cost into their fixed and variable portions. It takes approximately 10 minutes of total machine time for each cereal box (or 1/6 a machine hour per box of cereal).

 

5. Table 5 is where you will list all your production cost, separated into their fixed and variable components.

 

6. Cost-Volume-Profit (CVP) Relationships

 

1. Selling Price:  You sell a box of cereal for $6.70

 

2. Breakeven point: Calculate the breakeven point. Be sure to include the fixed component of mixed cost in your fixed costs and the variable component in the variable cost.  Show your breakeven in Sales units and in Sales Dollars

 

3. Profit Planning:  Determine the number of units you must sell to make an annual pre-tax profit using 3 assumptions concerning your net income (profit), both in sales units and sales dollars.

                                   

1. 1. 1. Aggressive Profit ($225,000)

 

1. 1. 2. Conservative Profit ($75,000)

 

1. 1. 3. Average Profit ($150,420)

 

 

 

7. Budgeting: 
   1. Create a sales budget using the information for earning an average profit for the year.  You will break the budget down into the four quarters for the year. (Sales tend to be consistent each quarter, you can only sale a whole unit so round-up if necessary) Use table 6 to complete the sales budget.
   2. Create a production budget for each quarter of the year (keep it in quarters; you do not need to break it down by month).  You desire to keep 10% of next quarter’s sales in ending inventory.  Sales for Qtr 1 the following year (year 2) are expected to be 21,000 boxes of cereal. There is not any beginning finished goods inventory for quarter one this year. Use table 7 to complete the production budget.

 

8. Running quarter one -- Weighted-average process costing.  Table 8 presents the information for the packaging department.  Complete the questions under table 8.

 

9. Actuals are in for quarter one.  You sold 5% more units than you budgeted for (round to a whole unit), but price per unit was $6.50.

 

9. 1. Calculate revenue
   2. Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost
10. Actual corn usage for quarter one was 76,890 pounds at a price of $0.49 per pound. Actual equivalent units of production (boxes of cereal) completed through the first process (where the corn is added) was 25,315.  Calculate the direct materials variances for the corn (price, usage, and total) and indicate if these variances are favorable or unfavorable.

 

11. Actual direct labor hours for the quarter were 4,015 at an average rate of $11.00 per hour.  For actual production, you expected to use 3,926 direct labor hours.  Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable. 

 

12. For next quarter, you have been asked to supply a special order of your cereal.  The non-profit organization requesting this order would like a custom box (packaging) that will cost $0.50 instead of the normal $0.20 per box.  The request is for 800 boxes of cereal.  Based on your projections you have the capacity for this order.  What is the minimum price per unit and total price you would be willing to accept on this order?  (You cannot afford to take this offer at a loss, but you are fine with accepting it at cost).

 

13. Determine over- or under-applied overhead and close to cost of goods sold.  Actual OH costs are given in table 13 (look at #11 for actual DL hours used to apply OH).  Determine the new cost of goods sold amount. 

 

 

 

 

Table 1: Direct Materials

Material	Quantity per unit	Cost	Total per unit
corn	3 lbs	$0.50	$1.50
seasoning	2 ounce	0.05	0.10
packaging	1 cardboard box	0.20	0.20
Total cost			$1.80

 

Table 2:   Direct Labor

Job description	Hours per unit	Rate	Total cost
Processor	0.1	$10.50	$1.05
Baker	0.04	10.50	0.42
Packager	0.02	10.50	0.21
Total cost			$1.68

 

Table 3:  YEARLY OVERHEAD COSTS

        

Cost description	Amount
Indirect material	$9,600
Indirect labor	60,000
Machine Maintenance	4,476
Electricity	5,320
Depreciation	7,200
Quality testing	4,690
Total	$91,286

 

 #3 Answer

Predetermined OH rate:

=Total estimated OH costs/ Total estimated allocation base

=$91,286/12,336= $7.39

 

 

Table 4 – Actual Overhead cost for the last two months

	Month 1	Month 2
Indirect Material	$800	$800
Indirect Labor	5,000	5,000
Machine Maintenance	410	500
Electricity	504	630
Depreciation	600	600
Quality testing	428	500
Total Overhead Cost	7,742	8,030
Number of Units	7,200	9,000
Machine Hours *	1,200	1,500

 

*10 minutes of machine time per box of cereal (1/6 hour = 1 unit)

    

 Complete any calculations here:

 

Number of Units= MH*6

 

Month 1- 7,200

Month 2- 9,000

 

 

	Difference in OH costs	Difference in MH	VC per Unit	TVC	FC/month	FC/yr.
Machine Maintenance		1,800
Electricity		1,800
Quality Testing		1,800

 

 Table 5:  Variable and Fixed Costs

 

COSTS Description                  VARIABLE Cost per unit                   FIXED Cost per Year           

Direct Material	$1.80
Direct Labor	$1.68
Indirect Labor		$60,000
Indirect Material		$9,600
Machine Maintenance	$0.06
Electricity	$0.07
Depreciation		$7,200
Quality Testing	$0.06	$4,690
TOTAL	$3.75	$81,490

If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column.

 

CVP Calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 6 – Sales Budget (Q1, Q2, Q3, Q4)

 

 

 

 

 

 

 

 

 

Table 7 – Production Budget

 

	Qtr 1	Qtr 2	Qtr 3	Qtr 4

 

 

Process Costing – Packaging Department

 

Direct materials are added 90% at the beginning of the process and the remaining 10% are added when the cereal is 50% complete with the packaging process.  Direct labor and overhead are added evenly throughout the process.

 

Table 8 – Unit and cost information

		Cost
	Physical Units	Transferred-in	Direct Materials	Direct Labor	Overhead
Beg WIP	4,000 (40% complete)	$16,620	$720	$479.95	$240
Transferred In	22,013	$90,293.43
End WIP	4,200 (30% complete)

 

Added during Qtr 1:

Direct Materials -- $5,166.39

Direct Labor – 475 hrs @ $11.00 per hour

Overhead – OH is applied based on predetermined OH rate and actual DL hours

 

1. Determine the number of units completed during quarter 1.

 

 

 

 

2. Compute the equivalent units using the weighted average method

 

 

 

 

 

 

 

 

 

 

 

 

3. Compute the cost per equivalent unit using the weighted average method

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Compute the cost of goods transferred to finished goods inventory

 

 

 

 

 

 

 

 

 

 

5. Compute the ending balance in WIP, Packaging

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 9 – Actual Results (calculate revenue and COGS)

 

Units sold	Sales Price	Revenue
Units sold	Cost per unit	COGS

 

 

 

 

Table 10 – DM Variances (corn only)

 

Price Variance
Usage Variance
Total Variance

 

Calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 11 – Direct Labor Variances

 

Rate Variance
Efficiency Variance
Total Variance

 

Calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

#12 Calculations (Minimum price on special order)

 

 

Table 13 – Actual OH cost for Quarter 1

Description	Cost
Indirect Materials	$2,400
Indirect Labor	$15,000
Machine Maintenance	$1,800
Electricity	$2,000
Depreciation	$1,800
Quality Testing	$1,940

 

Amount of applied OH:

Amount of actual OH:

Under or Over- Applied Amount:

New COGS amount: