ACCT 001 Lecture Notes - Lecture 27: Denim, Direct Labor Cost

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graycricket860

18 Sep 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

cooper

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Document Summary

The master budget assists a company in planning, directing, and controlling performance. The control function includes budgetary performance evaluation and compares the actual performance against the budget. This comparison is typically shown in a budget performance report. We illustrate budget performance evaluation using western rider inc. , a manufacturer of blue jeans. Western rider inc. uses standard manufacturing costs in its budgets. The standards for direct materials, direct labor, and factory overhead are separated into two components: (1) a price standard and (2) a quantity standard. Multiplying these two elements together yields the standard cost per unit for a given manufacturing cost category, as shown for style xl jeans. Budgeted costs at planned volumes are included in the master budget at the beginning of the period. Standard amounts budgeted for materials purchases, direct labor, and factory overhead are determined by multiplying the standard costs per unit by the planned level of production.

Related Questions

Genie in a Bottle Company (GBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:

Cost Category Standard Cost per 100 Two-Liter Bottles
Direct labor $3.00
Direct materials 9.00
Factory overhead 0.60
Total $12.60

At the beginning of July, GBC management planned to produce 385,000 bottles. The actual number of bottles produced for July was 389,000 bottles. The actual costs for July of the current year were as follows:

Cost Category Actual Cost for the Month Ended July 31
Direct labor $11,150
Direct materials 33,819
Factory overhead 2,802
Total $47,771

Required:
A. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for GBC, assuming planned production.
B. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
C. Interpret the budget performance report.

A. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for GBC, assuming planned production.

Genie in a Bottle Company
Manufacturing Cost Budget
For the Month Ended July 31, 2016

1
Manufacturing Costs
Standard Cost at Planned Volume (385,000 Bottles)
2
Direct labor
3
Direct materials
4
Factory overhead
5
Total

B. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Genie in a Bottle Company
Budget Performance Report
For the Month Ended July 31, 2016

1
Manufacturing Costs
Actual Costs
Standard Cost at Actual Volume (389,000 Bottles)
Cost Varianceâ(Favorable) Unfavorable
2
Direct labor
3
Direct materials
4
Factory overhead
5
Total manufacturing costs

C. Interpret the budget performance report.
The Company's actual costs were $1,243 budgeted. direct labor and direct material cost variances more than offset a small factory overhead cost variance.

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Case 3

Part 1 Master Budgets

Pizza L.L.C. operates pizza delivery and carry-out restaurants.The annual report describes its business as follows: We offer afocused menu of high-quality, value-priced pizza with three typesof crust (Hand-Tossed, Thin Crust, and Deep Dish), made from freshdough produced in our regional distribution centers. We prepareevery pizza using real cheese, pizza sauce made from freshtomatoes, and a choice of high-quality meat and vegetable toconsistently and efficiently produce the highest-quality pizza.

Over the 41 years since our founding, we have developed asimple, cost-efficient model. We offer a limited menu, our storesare designed for delivery and carry-out, and we do not generallyoffer dine-in service. As a result, our stores require relativelysmall, lower-rent locations and limited capital expenditures.

How would a master budget support planning, directing, andcontrol for Pizza LLC? Include the three major objectives ofbudgeting? Under what circumstances would a static budget beappropriate?

Briefly describe the type of human behavior problems that mightarise if budget goals are set too tightly? Too loosely? Or ifconflicting goals within the budget?

Why should the production requirements set forth in theproduction budget be carefully coordinated with the sales budgetAND Why should the timing of direct materials purchases be closelycoordinated with the production budget?

Budget performance report

The Box Company (BC) manufactures boxes for the pizza industry.The cost standards per 100 boxes are:

Cost Category Standard cost per 100 boxes

Direct labor 2.00

Direct materials 9.10

Factory overhead .55

Total 11.65

At the beginning of July, BC management planned sales andproduction of 400,000 boxes. The actual number of boxes sold andproduced for July was 406,000 boxes.

The actual production costs for July of the current year were asfollows:

Cost Category Standard cost per 100 boxes

Direct labor 7540

Direct materials 35750

Factory overhead 2680

Total 45970

Prepare the July manufacturing standard cost budget (directlabor, direct materials, and overhead) for BC, assuming plannedproduction.

Prepare a budget performance report for manufacturing costs,showing the total cost variances for direct materials, directlabor, and factory overhead for July.

Interpret the budget performance report.

Part 2 Evaluating Divisional Performance and Capital InvestmentAnalysis

The three divisions of a Foods Co. are Snacks, Morning Foods,and Frozen. The divisions are structured as investment centers. Thefollowing responsibility reports were prepared for the threedivisions for the prior year:

Snack Morning Foods Frozen

Revenues 2200000 2520000 2100000

Operating Expenses 1366600 1122000 976800

Income from Op

Before service dept 833400 1398000 1123300

Service dept charges

Promotion 300000 600000 468000

Legal 137400 243600 235200

Total Service Dept charges 437400 843600 703200

Income from Operations 396000 554400 420000

Invested Assets 2000000 1680000 1750000

Which division is making the best use of invested assets andshould be given priority for future capital investments? ConsiderROI, the acceptable and rate of return.

Assuming that the minimum acceptable rate of return on newprojects is 19%, would all investments that produce a return inexcess of 19% be accepted by the divisions?

Can you identify opportunities for improving the company'sfinancial performance?

Category	Points	Description
Understanding	10	Demonstrate a strong grasp of the problem at hand. Demonstrateunderstanding of how the course concepts apply to the problem.
Analysis	20	Apply original thought to solving the business problem. Applyconcepts from the course material correctly toward solving thebusiness problem.
Execution	20	Write your answer clearly and succinctly using strongorganization and proper grammar. Use citations correctly.
Total	50	A quality paper will meet or exceed all of the aboverequirements.

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Consider the following information from Grantham Company,then see the instructions that
follow.

Grantham Company manufactures dog whistles. The followinginformation is available from
the budgetary control system for 2016, and was used to createthe master budget. Grantham
applies overhead using an activity index of direct laborhours.

	Variable Costs	Rate per direct labor hour
	Indirect labor	$0.52
	Indirect materials	0.36
	Factory utilities	0.88
	Factory repairs	0.48

	Fixed Costs	Amount per year
	Depreciation	$25,300
	Insurance	9,300
	Property taxes	5,800
	Supervision	61,500

The master overhead budget was prepared with the expectationthat 462,000 direct labor
hours would be worked during the year. In August, 39,500 directlabor hours were worked.
At that level of activity, actual costs were as shown below:

	Variable Costs
	Indirect labor	$0.54	per labor hour
	Indirect materials	0.34	per labor hour
	Factory utilities	0.91	per labor hour
	Factory repairs	0.53	per labor hour

	Fixed Costs
	Depreciation	$2,108
	Insurance	825
	Property taxes	500
	Supervision	5,250

Instructions:
Prepare a monthly manufacturing overhead flexible budget,assuming production levels
ranging from 30,000 to 45,000 direct labor hours, in incrementsof 5,000.

Prepare a budget report for August comparing actual results tothe flexible budget. Explain
whether costs were successfully controlled and how you cantell.

THIS ASSIGNMENT MUST BE COMPLETED IN EXCEL. You should developan efficient and
customizable production cost report, using formulas wheneverpossible instead of keyed in
values. No numeric values except the ones shown above shouldneed to be keyed in.

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ACCT 001 Lecture Notes - Lecture 27: Denim, Direct Labor Cost

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