Fixed Overhead Spending and Volume Variances, Capacity Management

Lorale Company, a producer of recreational vehicles, recently decided to begin producing a major subassembly for jet skis. The subassembly would be used by Lorale’s jet ski plants and also would be sold to other producers. The decision was made to lease two large buildings in two different locations: Little Rock, Arkansas, and Athens, Georgia. The company agreed to an 11-year, renewable lease contract. The plants were of the same size, and each had 10 production lines. New equipment was purchased for each line, and workers were hired to operate the equipment. The company also hired production line supervisors for each plant. A supervisor is capable of directing up to two production lines per shift. Two shifts are run for each plant. The practical production capacity of each plant is 300,000 subassemblies per year. Two standard direct labor hours are allowed for each subassembly. The costs for leasing, equipment depreciation, and supervision for a single plant are as follows (the costs are assumed to be the same for each plant):

*For simplicity, assume these are the only fixed overhead costs.

After beginning operations, Lorale discovered that demand for the product in the region covered by the Little Rock plant was less than anticipated. At the end of the first year, only 240,000 units were sold. The Athens plant sold 300,000 units as expected. The actual fixed overhead costs at the end of the first year were $2,500,000 (for each plant).

1. Calculate a fixed overhead rate based on standard direct labor hours.
$ per hour

2. Calculate the fixed overhead spending and volume variances for the Little Rock and Athens plants. What is the most likely cause of the spending variance? Enter amounts as positive numbers and select Favorable or Unfavorable. If an amount is zero, enter "0" and choose "Not applicable" from the dropdown list.

US Reshoring will be powerful economic force 2020-2025, Agree or Disagree

Cash Budgeting
The sales budget for your company in the coming year is based on a quarterly growth rate of 10 percent, with the first-quarter sales projection at $165 million. In addition to this basic trend, the seasonal adjustments for the four quarters are, in millions, 0, -$12, –$6, and $18, respectively. Generally, 50 percent of the sales can be collected within the quarter and 45 percent in the following quarter; the rest of the sales are bad debt. The bad debts are written off in the second quarter after the sales are made. The beginning accounts receivable balance is $84 million. Assuming all sales are on credit, compute the cash collections from sales for each quarter.

Don't round off until you get to the end.

1. What is true at the quantity where total revenue is maximized?

Select one:

a. Demand is inelastic.

b. The elasticity value = 1

c. MR is positive

d. MR is negative

2. "Every company needs to worry about a recession." This statement should be modified because

Select one:

a. companies with a negative cross-price elasticity will likely enjoy more sales because recessions do not affect the sales of complementary products.

b. companies that sell goods with high own-price elasticity of demand will likely enjoy more sales as their prices rise during a recession.

c. companies that sell normal goods will likely enjoy more sales during a recession with falling incomes.

d. companies that sell inferior goods (negative income elasticity) will likely enjoy more sales during a recession with falling incomes.

3. Everyone knows that the biggest rival to your company (Frank's Fantastic Fudge-Filled Fedoras) is Nate's Nutella-eNgorged Neckerchiefs. On a lark and using sales and price data, you estimate the cross-price elasticity between Frank's and Nate's two products to be 0.08, while the cross-price elasticity between Frank's product and Cole's Cocoa-Covered Corduroy Caps is 1.12. Your calculations suggest that

Select one:

a. consumers consider Frank's and Cole's products to be more complementary to each other than are Frank's and Nate's products.

b. consumers consider Frank's and Nate's products to be better substitutes than are Frank's and Cole's products.

c. consumers consider Frank's and Cole's products to be better substitutes than are Frank's and Nate's products.

d. Frank's should be more concerned if Nate's drops the price of their product than if Cole's drops the price of their product.

The government of Osiris believes in balancing its budget over a seven-year cycle. Over the first six years, it has maintained its spending at $180 billion and its MTR at 0.25. (There are no autonomous taxes in Osiris). Column 2 of the table below shows the level of GDP in each of the first six years in the cycle.

a. Complete the table below. Round your answers to nearest whole number.

Suppose that the estimated level of GDP in Year 7 is projected to be $700.

b. What level of government spending (assuming no change in the tax rate) for the government of Osiris to end the seven-year cycle with its budgetary goal on target?

    Government spending would have to be $  .

c. Alternatively, what should the new tax rate be (assuming no change in government spending) for the government of Ran to end the seven-year cycle with its budgetary goal on target? Round your answer to 2 decimal places.

    Tax rate should be changed to  %.

A model rocket is fired vertically upward from rest. Its acceleration for the first three seconds is given by a(t) = 60t ft/s2 , at which time the fuel is exhausted and it becomes a freely “falling” body and falls to the ground.

(a) Determine the position function s(t) for all times t > 0.

(b) What is the maximum height achieved by the rocket? (

c) At what value of t does the rocket land?

Required information

Problem 9-31 Production and Direct-Labor Budgets; Activity-Based Overhead Budget (LO 9-3, 9-4, 9-5, 9-6)

[The following information applies to the questions displayed below.]

Spiffy Shades Corporation manufactures artistic frames for sunglasses. Talia Demarest, controller, is responsible for preparing the company’s master budget. In compiling the budget data for 20x1, Demarest has learned that new automated production equipment will be installed on March 1. This will reduce the direct labor per frame from 1.0 hour to 0.75 hour.

Labor-related costs include pension contributions of $1.30 per hour, workers’ compensation insurance of $1.00 per hour, employee medical insurance of $4 per hour, and employer contributions to Social Security equal to 7.00 percent of direct-labor wages. The cost of employee benefits paid by the company on its employees is treated as a direct-labor cost. Spiffy Shades Corporation has a labor contract that calls for a wage increase to $15.00 per hour on April 1, 20x1. Management expects to have 16,200 frames on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following month’s sales plus 40 percent of the second following month’s sales.

These and other data compiled by Demarest are summarized in the following table.

1. Prepare a production budget and a direct-labor budget for Spiffy Shades Corporation by month and for the first quarter of 20x1. (Round "Direct-labor hours per unit" to 2 decimal places.)

2. For each item used in the firm’s production budget and direct-labor budget, select the other components of the master budget (except for financial statement budgets) that also, directly or indirectly, would use these data. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

1. Sales data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Sales budgetunanswered
• Cash disbursements budgetunanswered

2. Production data:

• Selling and administrative expense budgetunanswered
• Direct-material budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Production-overhead budgetunanswered
• Cash budgetunanswered
• Cash disbursements budgetunanswered
• Sales budgetunanswered

3. Direct-labor-hour data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Sales budgetunanswered
• Cash disbursements budgetunanswered

4. Direct-labor cost data:

• Selling and administrative expense budgetunanswered
• Production-overhead budgetunanswered
• Direct-material budgetunanswered
• Cash budgetunanswered
• Sales budgetunanswered
• Cost-of-goods-sold budgetunanswered
• Cash disbursements budget

3. Prepare a production overhead budget for each month and for the first quarter.

Suppose a state is considering three different types of fiscal limits for local governments in the state--a maximum property tax rate, a limit that property tax revenue may not increase more than population and inflation rate together, or a limit that spending may not increase more than five percent. In each case, the limit may be exceeded by majority vote. Which limit is most restrictive and why? Contrast the three in terms of the sources of allowed increases in taxes or spending and the potential effect on local services.

Suppose a state is considering three different types of fiscal limits for local governments in the state--a maximum property tax rate, a limit that property tax revenue may not increase more than population and inflation rate together, or a limit that spending may not increase more than five percent. In each case, the limit may be exceeded by majority vote. Which limit is most restrictive and why? Contrast the three in terms of the sources of allowed increases in taxes or spending and the potential effect on local services.

The following information for Dorado Corporation relates to the three-month period ending September 30.

Dorado expects to purchase 245,000 units of inventory in the fourth quarter of the current calendar year at a cost of $44 per unit, and to have on hand 83,000 units of inventory at year-end. Dorado uses the last-in, first-out (LIFO) method to account for inventory costs.

A.Determine the cost of goods sold and gross profit amounts Dorado should record for the three months ending September 30.

B.Prepare journal entries to reflect these amounts.