Question

^{Blake Koepka’s goal has always been to design the finest putters for the best golfers in the world. Blake’s latest invention is the “Happy Gilmore,” a triangular-shaped mallet-style putter that has the highest moment of inertia of any putter ever made. The putter, which is milled from aircraft-quality aluminum and tungsten, has a substantial amount of mass located several inches behind the putter face, giving it a deep center of gravity. This deep center of gravity makes the Gilmore very stable and forgiving, which should help the golfer make more putts. Prior to the start of the year, Blake’s management team developed the following budget for the Gilmore:}

^{Sales and production (# of putters)                                                                        5,500}

^{Sales price per putter                                                                                             $270}

^{Variable materials cost per putter:}

^{Aluminum and weights (per putter head) – 1,000 grams @ $0.055 per gram         $55}

^{Shaft (steel) – 1 per putter @ $9.00                                                                      $9}

^{Grip – 1 per putter @ $12.00                                                                              $12}

^{Variable labor costs (3 hours per putter @ $20 per hour)                                            $60}

^{Fixed costs per unit (based on budgeted production)                                                  $70}

^{Upon seeing these figures, Blake wondered if there was a way to increase his company’s profit from the Gilmore putter.}

^{Blake had two ideas for further changes in the coming year (these changes are not reflected in the budget above):}

^{1)   increase the selling price to $295 per putter, and}

^{2)   rent a new milling machine.}

^{The milling machine rental would cost Blake $65,000 in fixed costs for the year, but he expected the new machine to reduce the labor time associated with making each putter. He also expected the new machine to reduce materials waste – although each finished putter head weighs only 350 grams, the production process using existing equipment involves 650 grams waste (1,000 grams – 350 grams) of aircraft-quality aluminum and tungsten.}

^{Blake implemented both of his ideas and actual results for the year were as follows:}

^{Sales and production (# of putters)                                                                        4,950}

^{Sales price per putter                                                                                             $295}

^{Materials cost per putter:}

^{Aluminum and weights (for putter head) – 600 grams @ $0.07 per gram              $42}

^{Shaft (steel) – 1 per putter                                                                                    $9}

^{Grip – 1 per putter                                                                                             $14}

^{Labor costs per putter (13,500 total hours @ $20/hour for all putters produced)          $52}

^{Fixed costs (for the year)                                                                                 $440,000}

1. ^{Determine a) static budgeted profit based on the original expected sales volume, b) flexible budgeted profit based on the actual sales volume, and c) actual profit. Be sure your results include a line for revenue and a line for each cost item.}  
2. ^{For total profit, calculate the static budget variance, flexible budget variance, and sales-activity variance. Be sure to indicate whether the variance is favorable or unfavorable. Explain what each of these profit variances represents. Be specific.}  
3. ^{What would have been the effect on total profit of increasing the selling price to $295? Assume the smaller sales volume was entirely due to the higher price. For this calculation of the effect of higher selling price, assume that cost behavior for fixed costs and variable cost per unit remained as specified in the budget prepared before the end of the year.}  
4. ^{Calculate and explain the variances that would help Blake assess whether renting the new milling machine reduced material waste and labor time required to produce putters, and whether renting the milling machine increased total profit during the year.}  

Answer 1

Note :- as question contain multiple Questions answered for the first only.

a) static budgeted profit based on the original expected sales volume

Budgeted	Price/Cost per unit	Requirement per unit	Total Sales /Production	Amt
A	B	C	D	E=B*C*D
Sales	$    270.00	1	5500	$ 1,485,000
Less:
Variable materials cost
Aluminum and weights	$         0.06	1000	5500	$     302,500
Shaft (steel)	$         9.00	1	5500	$        49,500
Grip	$       12.00	1	5500	$        66,000
Variable labor costs	$       20.00	3	5500	$     330,000
Fixed costs	$       70.00	1	5500	$     385,000
			Budgeted Profit	$     352,000

b) flexible budgeted profit based on the actual sales volume,

i. without adopting changes in price and new machinery installation

Budgeted	Price/Cost per unit	Requirement per unit	Total Sales /Production	Amt
A	B	C	D	E=B*C*D
Sales	$    270.00	1	4950	$ 1,336,500
Less:
Variable materials cost
Aluminum and weights	$       0.055	1000	4950	$     272,250
Shaft (steel)	$         9.00	1	4950	$        44,550
Grip	$       12.00	1	4950	$        59,400
Variable labor costs	$       20.00	3	4950	$     297,000
Fixed costs	$       70.00	1	5500	$     385,000
			Budgeted flexible Profit	$     278,300

ii. with adoption of price changes and new machinery installation

Budgeted	Price/Cost per unit	Requirement per unit	Total Sales /Production	Amt
A	B	C	D	E=B*C*D
Sales	$    295.00	1	4950	$ 1,460,250
Less:
Variable materials cost
Aluminum and weights	$       0.055	350	4950	$        95,288
Shaft (steel)	$         9.00	1	4950	$        44,550
Grip	$       12.00	1	4950	$        59,400
Variable labor costs	$       20.00	2.6	4950	$     257,400
Fixed costs	$       70.00	1	5500	$     385,000
Additional Fixed Cost				$        65,000
			Budgeted Profit	$     553,613

Note;

1. expected that the new machine to reduce materials waste. as extent of reduction not specified clearly in the issue assumed that reduction of full waste of 650 gr is achieved,

2. expected the new machine to reduce the labor time associated with making each putter. hence new cost per unit is $52 / $ 20 per unit = 2.6 hour per unit

c) actual profit

Budgeted	Price/Cost per unit	Requirement per unit	Total Sales /Production	Amt
A	B	C	D	E=B*C*D
Sales	$     295.00	1	4950	$ 1,460,250
Less:
Variable materials cost
Aluminum and weights	$          0.07	600	4950	$     207,900
Shaft (steel)	$          9.00	1	4950	$        44,550
Grip	$       14.00	1	4950	$        69,300
Variable labor costs	$       20.00	2.6	4950	$     257,400
Fixed costs	-	-	-	$     440,000
			Actual Profit	$     441,100