Question

Utease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows.

Manufacturing costs (per unit based on expected activity of 24,000 units or 36,000 direct labor hours):

Direct materials (2 pounds at $20)   $   40.00        
Direct labor (1.5 hours at $90)      135.00        
Variable overhead (1.5 hours at $20)      30.00        
Fixed overhead (1.5 hours at $30)      45.00        
Standard cost per unit   $   250.00        
Budgeted selling and administrative costs:              
Variable   $   5      per unit
Fixed   $   1,800,000        

Expected sales activity: 20,000 units at $425.00 per unit

Desired ending inventories: 10% of sales

Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity.

  
Units produced      23,000        
Units sold      21,500        
Unit selling price   $   420        
Direct labor hours worked      34,000        
Direct labor costs   $   3,094,000        
Direct materials purchased      50,000      pounds
Direct materials costs   $   1,000,000        
Direct materials used      50,000      pounds
Actual fixed overhead   $   1,080,000        
Actual variable overhead   $   620,000        
Actual selling and administrative costs   $   2,000,000        
  

In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.

a. Prepare a production budget for the coming year based on the available standards, expected sales, and desired ending inventories.

b. Prepare a budgeted responsibility income statement for the Bellingham plant for the coming year.

d. Find the direct materials variances (materials price variance and quantity variance). (Enter your answers in dollars not in pounds. Indicate the effect of each variance by selecting Favorable, Unfavorable, and "None" for no effect (i.e., zero variance.)

f. Calculate the actual plant operating profit for the year.

Answer 1