Question

An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Attack Brownies” (CAB) in their online catalog. CAB will be sold in square tins and captioned with personal greetings. Jordan negotiated a selling price to Yumminess at $10 per tin.

You, using your accounting knowledge, had previously budgeted a cost of $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.

After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.

Jordan wants you to calculate a flexible manufacturing overhead budget assuming an annual level of 230,000 units instead of 200,000.

1. What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.) (3 points)

2. What would be total fixed manufacturing overhead costs for this new level? (Round to the nearest dollar.) (3 points)

3. Taylor asks you if flexible budgets can be calculated on a monthly basis. You state, “Of course! Let’s create a monthly manufacturing overhead flexible budget for 20,000 units. Please pass me the brownies!” What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.) (3 points)

4. Taylor asks you if flexible budgets can be calculated on a monthly basis. You state, “Of course! Let’s create a monthly manufacturing overhead flexible budget for 20,000 units. Please pass me the brownies!” What would be total fixed manufacturing overhead costs for this new level? (Round to the nearest dollar.) (3 points)

5. Given an annual master budget of 200,000 units with actual production of 210,000 units, you have been tasked to formulate a flexible budget report. What will be total manufacturing overhead costs at the budget level? (3 points)

Answer 1

Answer:
Requirement 1	The total variable manfacturing overhead cost changes with the change in the level of output so for the new level of 230,000 units it would be:
	Total variable cost at 200,000 units would be:	$          80,000.00	($100,000*80%)
	Total variable cost at 230,000 would be	$          92,000.00	($80,000*230,000/200,000)
Requirement 2	The total fixed manufacturing overhead cost remains same with change in the level of prodiction so it would be $100,000-$80,000 =$20,000.
	Total fixed manufacturing overhead	20000
Requirement 3	The monthly flexible budget at 20,000 units would be as follows:
		Per unit	For 20,000 Units
	Direct material	$                   6.00	$        1,20,000.00	($6*20,000)
	Direct Labor	$                   1.50	$           30,000.00	($1.5*20,000)
	Variable manufacturing overhead	$                   0.40	$             8,000.00	($0.40*20,000)
	Fixed manufacturing overhead		$             1,666.67	($20,000/12)
			$        1,59,666.67
	Total variable manufacturing overhead cost for 20,000 units would be $8,000.
Requirement 4	Total fixed manufacturing overhead cost for 20,000 units would be $1,666.67