Handy Leather, Inc., produces three sizes of sports gloves: small, medium, and large. A glove patternis first stenciled onto leather in the Pattern Department. The stenciled patterns are then sent to the
Cut and Sew Department, where the glove is cut and sewed together. Handy Leather uses the multiple
production department factory overhead rate method of allocating factory overhead costs. Its factory
overhead costs were budgeted as follows:
Pattern Department overhead
$153,400
Cut and Sew Department overhead
257,400
Total
$410,800
The direct labor estimated for each production department was as follows:
Pattern Department
2,600 direct labor hours
Cut and Sew Department
Total
3,300
5,900 direct labor hours
Direct labor hours are used to allocate the production department overhead to the products. The direct
labor hours per unit for each product for each production department were obtained from the
engineering records as follows:
Production Departments
Small Glove Medium Glove Large Glove
Pattern Department
0.05
0.06
0.07
Cut and Sew Department
0.07
0.09
0.11
Direct labor hours per unit
0.12
0.15
0.18
If required, round all per unit answers to the nearest cent.
a. Determine the two production department factory overhead rates.
Pattern Department
$fill in the blank 1
per dlh
Cut and Sew
Department
$fill in the blank 2
per dlh
b. Use the two production department factory overhead rates to determine the factory overhead per
unit for each product.
Small glove
$fill in the blank 3
per unit
Medium glove $fill in the blank 4
per unit
Large glove
per unit
$fill in the blank 5
Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and
a residential motor, through two production departments, Assembly and Testing. Presently, the
company uses a single plantwide factory overhead rate for allocating factory overhead to the two
products. However, management is considering using the multiple production department factory
overhead rate method. The following factory overhead was budgeted for Eclipse:
Assembly Department
$280,000
Testing Department
800,000
Total
$1,080,000
Direct machine hours were estimated as follows:
Assembly Department
4,000 hours
Testing Department
5,000
Total
9,000 hours
In addition, the direct machine hours (dmh) used to produce a unit of each product in each
department were determined from engineering records, as follows:
Commercial
Residential
Assembly Department
2.0 dmh
3.0 dmh
Testing Department
6.0
1.5
Total machine hours per unit
8.0 dmh
4.5 dmh
a. Determine the per-unit factory overhead allocated to the commercial and residential motors under
the single plantwide factory overhead rate method, using direct machine hours as the allocation base.
$fill in the blank 1
Commercial
per unit
Residential
$fill in the blank 2
per unit
b. Determine the per-unit factory overhead allocated to the commercial and residential motors under
the multiple production department factory overhead rate method, using direct machine hours as the
allocation base for each department.
$fill in the blank 3
Commercial
per unit
Residential
$fill in the blank 4
per unit
c. Recommend to management a product costing approach, based on your analyses in (a) and (b).
1. The management should consider multiple production department factory overhead rate methods,
because this method calculates the cost more accurately and considers the fact that commercial
products use more costly overheads than residential products.
2. The management should consider single plantwide factory overhead rate methods, because this
method calculates the cost more accurately and considers the fact that the overheads are applied
evenly based on the direct labor hours.
3. The management could consider either multiple production department factory overhead rate
method or the single plantwide rate, as both these methods have the same effect on the final costs.
Single Plantwide Factory Overhead Rate
Scrumptious Snacks Inc. manufactures three types of snack foods: tortilla chips, potato chips, and
pretzels. The company has budgeted the following costs for the upcoming period:
Factory depreciation
$10,881
Indirect labor
26,967
Factory electricity
3,075
Indirect materials
6,387
Selling expenses
15,139
Administrative expenses
8,516
Total costs
$70,965
Factory overhead is allocated to the three products on the basis of processing hours. The products had
the following production budget and processing hours per case:
Budgeted Volume
Processing Hours
(Cases)
Per Case
Tortilla chips
1,500
0.12
Potato chips
4,500
0.15
Pretzels
3,900
0.10
Total
9,900
If required, round all per-case answers to the nearest cent.
a. Determine the single plantwide factory overhead rate.
$fill in the blank 1
per processing hour
b. Use the overhead rate in (a) to determine the amount of total and per-case overhead allocated to
each of the three products under generally accepted accounting principles.
Total
Per-Case
Factory Overhead
Factory Overhead
Tortilla
chips
$fill in the blank 2
$fill in the blank 3
Potato
chips
fill in the blank 4
fill in the blank 5
fill in the blank 6
fill in the blank 7
Pretzels
Total
$fill in the blank 8
The management of Nova Industries Inc. manufactures gasoline and diesel engines through two
production departments, Fabrication and Assembly. Management needs accurate product cost
information in order to guide product strategy. Presently, the company uses a single plantwide factory
overhead rate for allocating factory overhead to the two products. However, management is
considering the multiple production department factory overhead rate method. The following factory
overhead was budgeted for Nova:
Fabrication Department factory overhead
$507,000
Assembly Department factory overhead
195,000
Total
$702,000
Direct labor hours were estimated as follows:
Fabrication Department
3,900 hours
Assembly Department
3,900
Total
7,800 hours
In addition, the direct labor hours (dlh) used to produce a unit of each product in each department
were determined from engineering records, as follows:
Production Departments
Gasoline Engine Diesel Engine
Fabrication Department
1.30 dlh
2.70 dlh
Assembly Department
2.70
1.30
Direct labor hours per unit
4.00 dlh
4.00 dlh
a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the
single plantwide factory overhead rate method, using direct labor hours as the activity base.
$fill in the blank 1
Gasoline
engine
per unit
Diesel
engine
$fill in the blank 2
per unit
b. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the
multiple production department factory overhead rate method, using direct labor hours as the activity
base for each department.
$fill in the blank 3
Gasoline
engine
Diesel
engine
per unit
$fill in the blank 4
per unit
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Break-Even Sales Under Present and Proposed Conditions
Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during
the current year. Its income statement is as follows:
Sales
$190,000,000
Cost of goods sold
(100,000,000)
Gross profit
$90,000,000
Expenses:
Selling expenses
$16,000,000
Administrative expenses
16,000,000
Total expenses
(32,000,000)
Operating income
$58,000,000
The division of costs between variable and fixed is as follows:
Variable
Fixed
Cost of goods sold
70%
30%
Selling expenses
75%
25%
Administrative expenses
50%
50%
Management is considering a plant expansion program for the following year that will permit an
increase of $9,500,000 in yearly sales. The expansion will increase fixed costs by $3,000,000 but will
not affect the relationship between sales and variable costs.
Required:
1. Determine the total variable costs and the total fixed costs for the current year.
Total variable costs
$fill in the blank 1
Total fixed costs
$fill in the blank 2
2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.
Unit variable cost
Unit contribution
margin
$fill in the blank 3
$fill in the blank 4
3. Compute the break-even sales (units) for the current year.
fill in the blank 5
units
4. Compute the break-even sales (units) under the proposed program for the following year.
fill in the blank 6
units
5. Determine the amount of sales (units) that would be necessary under the proposed program to
realize the $58,000,000 of operating income that was earned in the current year.
fill in the blank 7
units
6. Determine the maximum operating income possible with the expanded plant.
$fill in the blank 8
7. If the proposal is accepted and sales remain at the current level, what will the operating income or
loss be for the following year?
$fill in the blank 9
Income
8. Based on the data given, would you recommend accepting the proposal?
a. In favor of the proposal because of the reduction in break-even point.
b. In favor of the proposal because of the possibility of increasing income from operations.
c. In favor of the proposal because of the increase in break-even point.
d. Reject the proposal because if future sales remain at the current level, the income from
operations will increase.
e. Reject the proposal because the sales necessary to maintain the current income from
operations would be below the current year sales.
Choose the correct answer.
b
Hilton Inc. sells a product for $81 per unit. The variable cost is $52 per unit, while fixed costs are
$124,468.
Determine (a) the break-even point in sales units and (b) the break-even point if the selling price
were increased to $89 per unit.
a. Break-even point in sales units
b. Break-even point if the selling price were increased to $89 per unit
fill in the blank 1
units
fill in the blank 2
units
United Merchants Company sells 21,000 units at $17 per unit. Variable costs are $12.24 per unit,
and fixed costs are $59,000.
Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) operating
income.
a. Contribution margin ratio (Enter as a whole number.)
b. Unit contribution margin (Round to the nearest
cent.)
c. Operating income
fill in the blank 1
%
$fill in the blank 2 per
unit
$fill in the blank 3
Sales, Production, Direct Materials Purchases, and Direct Labor Cost Budgets
The budget director of Royal Furniture Company requests estimates of sales, production, and other
operating data from the various administrative units every month. Selected information concerning
sales and production for February is summarized as follows:
a. Estimated sales of King and Prince chairs for February by sales territory:
Northern Domestic:
King
610 units at $780 per unit
Prince 750 units at $550 per unit
Southern Domestic:
King
340 units at $780 per unit
Prince 440 units at $550 per unit
International:
King
360 units at $850 per unit
Prince 290 units at $600 per unit
b. Estimated inventories at February 1:
Direct materials:
Fabric
420 sq. yds.
Wood
580 linear ft.
Filler
250 cu. ft.
Springs
660 units
Finished products:
King
90 units
Prince
25 units
c. Desired inventories at February 28:
Direct materials:
Fabric
390 sq. yds.
Wood
650 linear ft.
Filler
300 cu. ft.
Springs
540 units
Finished products:
King
80 units
Prince
35 units
d. Direct materials used in production:
In manufacture of King:
Fabric
6.0 sq. yds. per unit of product
Wood
38 linear ft. per unit of product
Filler
4.2 cu. ft. per unit of product
Springs
16 units per unit of product
In manufacture of Prince:
Fabric
4.0 sq. yds. per unit of product
Wood
26 linear ft. per unit of product
Filler
3.4 cu. ft. per unit of product
Springs
12 units per unit of product
e. Anticipated purchase price for direct materials:
Fabric
$12.00 per sq. yd.
Wood
7.00 per linear ft.
Filler
$3.00 per cu. ft.
Springs
4.50 per unit
f. Direct labor requirements:
King:
Framing Department
1.2 hrs. at $12 per hr.
Cutting Department
0.5 hr. at $14 per hr.
Upholstery Department
0.8 hr. at $15 per hr.
Prince:
Framing Department
1.0 hr. at $12 per hr.
Cutting Department
0.4 hr. at $14 per hr.
Upholstery Department
0.6 hr. at $15 per hr.
Required:
1. Prepare a sales budget for February.
Product and Area
Royal Furniture Company
Sales Budget
For the Month Ending February 28
Unit Sales
Volume
Unit Selling
Price
Total Sal
fill in the blank 1
$fill in the blank 2
$fill in the
fill in the blank 4
fill in the blank 5
fill in the
fill in the blank 7
fill in the blank 8
fill in the
King:
Northern Domestic
Southern Domestic
International
fill in the blank 10
Total
$fill in the b
Prince:
Northern Domestic
Southern Domestic
International
fill in the blank 12
$fill in the blank 13
$fill in the b
fill in the blank 15
fill in the blank 16
fill in the b
fill in the blank 18
fill in the blank 19
fill in the b
fill in the blank 21
Total
Total revenue from sales
2. Prepare a production budget for February. For those boxes in which you must enter subtracted or
negative numbers use a minus sign.
Royal Furniture Company
Production Budget
For the Month Ending February 28
$fill in the b
$fill in the b
Units
King
Prince
fill in the blank
fill in the blank
25
26
fill in the blank
fill in the blank
28
29
fill in the blank
fill in the blank
31
32
fill in the blank
fill in the blank
34
35
fill in the blank
fill in the blank
37
38
3. Prepare a direct materials purchases budget for February. For those boxes in which you must enter
subtracted or negative numbers use a minus sign.
Fabric
(sq. yds.)
Royal Furniture Company
Direct Materials Purchases Budget
For the Month Ending February 28
Direct Materials
Wood
Filler
(linear ft.)
(cu. ft.)
Springs
(units)
Required units for
production:
fill in the blank 39
fill in the blank 40
fill in the blank 41
fill in the bla
fill in the blank 43
fill in the blank 44
fill in the blank 45
fill in the bla
fill in the blank 47
fill in the blank 48
fill in the blank 49
fill in the bla
fill in the blank 51
fill in the blank 52
fill in the blank 53
fill in the bla
Estimated inventory,
February 1
fill in the blank 55
fill in the blank 56
fill in the blank 57
fill in the bla
Total units to be
purchased
fill in the blank 59
fill in the blank 60
fill in the blank 61
fill in the bla
$fill in the blank 63
$fill in the blank 64
$fill in the blank 65
$fill in the bla
$fill in the blank 67
$fill in the blank 68
$fill in the blank 69
$fill in the bla
King
Prince
Desired inventory,
February 28
Total
Unit price
Total direct materials to
be purchased
4. Prepare a direct labor cost budget for February.
Royal Furniture Company
Direct Labor Cost Budget
For the Month Ending February 28
Framing
Cutting
Department
Department
Uphols
Departm
Hours required for production:
King
Prince
Total
Hourly rate
Total direct labor cost
fill in the blank 72
fill in the blank 73
fill in the
fill in the blank 75
fill in the blank 76
fill in the
fill in the blank 78
fill in the blank 79
fill in the
$fill in the blank 81
$fill in the blank 82
$fill in the
$fill in the blank 84
$fill in the blank 85
$fill in the
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