Paducah Slugger Company makes baseball bats out of lumber supplied to it by Acme Sporting Goods, which pays Paducah $10 for each finished bat. Paducah's only factors of production are lathe operators and a small building with a lathe. The number of bats per day it produces depends on the number of employee-hours per day, as shown in the table below.

a. Suppose the wage is $14 per hour and Paducah’s daily fixed cost for the lathe and building is $60.

Instructions: Complete the table below. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Enter your responses as whole numbers.

What is the profit-maximizing quantity of bats?  bats.

b. What would be the profit-maximizing number of bats if the firm’s fixed cost were not $60 per day but only $30?

bats.

Genuine Spice Inc. began operations on January 1, 2016. The company produces a hand and body lotion in an eight-ounce bottle called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part B—August Budgets

During July of the current year, the management of Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 per case for August. Inventory planning information is provided as follows:

Finished Goods Inventory:

Materials Inventory:

There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.

Required:

5. Prepare the August production budget. Enter all amounts as positive numbers.

6. Prepare the August direct materials purchases budget. Enter the unit price to the nearest cent. Enter all amounts as positive numbers.

7. Prepare the August direct labor budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required.

8. Prepare the August factory overhead budget. If an amount box does not require an entry, leave it blank.

9. Prepare the August budgeted income statement, including selling expenses. Enter all amounts as positive numbers.

Suppose Bella's Belt Barn operates in a perfectly competitive market and is producing its profit-maximizing level of output. Suppose further that at this level of production, Bella's average total cost of producing belts is $22.50, average variable cost is $21.30, and marginal cost is $21.70. At this moment, Bella is earning _____ economic profits. Over time, everything else held constant, the price of belts in this market will _____.

Your Corporation uses a standard cost system to collect costs related to the production. The labor standards for each unit are 1.2 hours at a standard cost of $18 per hour. During the month, employees work 34,000 hours in the production of 30,000 units. The total labor cost was $649,400. What is the efficiency (quantity) variance for the month?

____    16.       In a perfectly competitive market, the typical firm cannot affect the price of the output that it sells, and so the firm maximizes its profits or minimizes any losses (assuming that P > AVC and the firm produces at all) by producing that level of output where:

                        a.         MC < P.                                                                      c.         MC = P.

                        b.         MC > P.                                                                      d.        P>MC = AVC.

____    17.       If the price faced by a competitive firm is less than its average total cost but greater than its average variable cost when it produces a particular level of output, the firm:

                        a.         is making a positive profit and should continue to produce.

                        b.         is incurring a loss in the short run, but it should continue to produce in order to minimize its loss.

                        c.         is breaking even, and so it should continue to produce a positive level of output.

                        d.         is incurring a loss and should shut down its plant immediately in order to minimize its loss.

____    18.       When a firm in perfect competition is maximizing its profits and produces that level of output where price, marginal revenue, marginal cost, average total cost, long-run marginal cost, and long-run average total cost are all equal, the firm:

                        a.         earns an economic profit, and this is greater than the return required to keep the firm in business.

                        b.         earns an economic profit that can be continued in the long run.

                        c.         is in a long-run equilibrium and is just breaking even.

                        d.         incurs a loss and will shut down in the long run.

Cabinaire Inc. is one of the largest manufacturers of office furniture in the United States. In Grand Rapids, Michigan, it produces filing cabinets in two departments: Fabrication and Trim Assembly. Assume the following information for the Fabrication Department:

Prepare a flexible budget for 15,000, 19,000, and 23,000 filing cabinets for the month of October 2016, similar to Exhibit 5, assuming that inventories are not significant. Enter all amounts as positive numbers.

Bullseye Company manufactures dartboards. Its standard cost information follows:

Bullseye has the following actual results for the month of September:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



2. Calculate the direct labor rate, efficiency, and total spending variances for Bullseye.(Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable.)



3. Calculate the variable overhead rate, efficiency, and total spending variances for Bullseye. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Barley Hopp, Inc., manufactures custom-ordered commemorative beer steins. Its standard cost information follows:

Barley Hopp had the following actual results last year:

Required:
1. Calculate the direct materials price, quantity, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



2. Calculate the direct labor rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable and "U" for unfavorable.)



3. Calculate the variable overhead rate, efficiency, and total spending variances for Barley Hopp. (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable/Overapplied and "U" for unfavorable/underapplied.)

Maxey & Sons manufactures two types of storage cabinets—Type A and Type B—and applies manufacturing overhead to all units at the rate of $136 per machine hour. Production information follows. Type A Type B Anticipated volume (units) 27,200 51,000 Direct-material cost per unit $ 36 $ 54 Direct-labor cost per unit 41 41 The controller, who is studying the use of activity-based costing, has determined that the firm’s overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities’ three respective cost drivers, follow. Type A Type B Total Setups 156 116 272 Machine hours 54,400 76,500 130,900 Outgoing shipments 200 150 350 The firm’s total overhead of $17,802,400 is subdivided as follows: manufacturing setups, $3,884,160; machine processing, $10,681,440; and product shipping, $3,236,800. Required: 1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company’s current overhead costing procedures. 2. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing. 3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much? 4. Assume that the current selling price of a Type A storage cabinet is $398.00 and the marketing manager is contemplating a $44 discount to stimulate volume. Is this discount advisable?

Maxey & Sons manufactures two types of storage cabinets—Type A and Type B—and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows.

The controller, who is studying the use of activity-based costing, has determined that the firm’s overhead can be identified with three activities: manufacturing setups, machine processing, and product shipping. Data on the number of setups, machine hours, and outgoing shipments, which are the activities’ three respective cost drivers, follow.

The firm’s total overhead of $3,080,000 is subdivided as follows: manufacturing setups, $672,000; machine processing, $1,848,000; and product shipping, $560,000.

Required:

1. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using the company’s current overhead costing procedures.

2. Compute the unit manufacturing cost of Type A and Type B storage cabinets by using activity-based costing.

3. Is the cost of the Type A storage cabinet overstated or understated (i.e., distorted) by the use of machine hours to allocate total manufacturing overhead to production? By how much?

4. Assume that the current selling price of a Type A storage cabinet is $260 and the marketing manager is contemplating a $30 discount to stimulate volume. Is this discount advisable?