In: Accounting
Cavco Industries of Phoenix Arizona produces manufactured housing for the 21st century that rivals the construction and design elements found in traditional site built homes. In business for over 40 years Cavco sells manufactured homes, camping cabins, and park model homes under 400 square feet in size and commercial buildings. The company has several hundred floor plans to choose from or it can customize floor plans to fit the design specifications of the buyer. Sales have risen about 7% annually over the past 3 years.
Cavco relies on lean manufacturing and just in time inventory management techniques at its 3 manufacturing facilities. With thousands of stock keeping units direct materials inventory turns over every week. The most expensive inventory items consist of wood and wood products, steel, drywall abd petroleum based products. There are about 50 different stations in the main assembly lines. On Cavco's production floor. They are fed daily by subsidiary job shops close by such as the in house cabinet making shop and flooring shop. Nothing is ever made to stock so the bills of materials coming from independent dealer orders drive the release of direct materials onto the floor at each station in assembly.
At each plant the manager schedules production so tightly that
there is rarely downtime at any station in an assembly line.
Efficiency is so consistent that budgeted direct materials and
direct manufacturing labor usually match the actual costs incurred
at month end. Instead of computing a budgeted overhead allocation
rate at the beginning of the year and adjusting at year end the
company applies actual plant overhead. This consists of
1-Utilities
2-Engineering
3-Purchasing
4-Plant manager salaries
This is done each month so managers can see how they did and make adjustments before the next month's production activities get too far along. Once each home section is completed it is driven out of the plant by independent shippers title passes to the dealer sales revenue is booked and the home is taken to its destination. With no unsold finished goods in stock at month end the only materials to account for each month are those not yet released into production and those in work in process inventory.
QUESTION 1
Assume Cavco has dedicated one of its manufacturing plants to
building camping cabins. Budgeted annual fixed manufacturing costs
for this facility are $2,000,000 and include the items listed in
the case. The amount will remain the same even though shifts per
day and days worked per week may fluctuate. The master budget for
2006 is based on one shift production of 2 camping cabins per day
over a 4 day work week. The plant is closed on Mondays for building
and equipment maintenance. The company also shuts down production
for one week in July and one week at the end of December. Normal
capacity utilization is based on one shift production of 2 cabinets
per day 5 days per week throughout the year. If every camping cabin
built in this plant takes the same amount of time to complete what
is the 2006 budgeted fixed manufacturing overhead cost rate per
cabin under theoretical capacity, practical capacity, normal
capacity utilization, and master budget capacity utilization?
budgeted fixed over head cost
per cabin
Theoretical capacity=fixed over head/theoretical capacity
=2000000/730cabinets
=2740/cabinet
Normal capacity=fixed overhead /normal capacity
=2000000/520cabinets
=3846/cabinet
Practical capacity=fixed over head/practical capacity
=2000000/494
=4049/ cabinet
Master budget capacity=budgetted fixed overhead/master budget capacity
=2000000/416 cabinets
=4808 /cabinet