ACTG 2020 Chapter Notes - Chapter 2: Finished Good, Income Statement, Canadian Tire
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Gower Ltd., a manufacturer of plastic products, reports thefollowing manufacturing costs and account analysis classificationfor the year ended December 31, 2014.
Account Classification Amount
Direct materials | All variable | 300,000 | |
Direct manufacturing labour | All variable | 225,000 | |
Power | All variable | 37,500 | |
Supervision labour | 20% | variable | 56,250 |
Materials-handling labour | 50% | variable | 60,000 |
Maintenance labour | 40% | variable | 75,000 |
Depreciation | 0% | variable | 95,000 |
Rent, property taxes, and administration | 0% | variable | 100,000 |
Gower Ltd, produced 75,000 units of product in 2014. Gower’smanagement is estimating costs for 2015 on the basis of 2014numbers. The following additional information is available for2015:
a. Direct materials prices in 2015 are expected to increase by5% compared with 2014.
b. Under the terms of the contract, direct manufacturing labourwage rates are expected to increase by 10% in 2015 compared with2014.
c. Power rates and wage rates for supervision, materialshandling, and maintenance are not expected to change from 2014 to2015.
d. Depreciation costs are expected to increase by 5%, and rent,property taxes, and administration costs are expected to increaseby 7%.
e. Gower, Inc., expects to manufacture and sell 80,000 units in2015. Required:
1. Prepare a schedule of variable, fixed, and totalmanufacturing costs for each account category in 2015. Estimatetotal manufacturing costs for 2015.
2. Calculate Gower’s total manufacturing cost per unit in 2014,and estimate total manufacturing cost per unit in 2015.
3. How can you get better estimates of fixed and variable costs?Why would these better estimates be useful to Gower?
Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manufactured by RoseMarie Limited is increasing, and management requests assistance from you in determining the best sales and production mix for the coming year. The company has provided the following data: |
Product | Demand Next Year (units) | Selling Price per Unit | Direct Materials | Direct Labour | ||||||||
Teddy bear | 11,000 | $ | 40 | $ | 6.50 | $ | 1.50 | |||||
Polar bear | 9,000 | $ | 42 | $ | 5.30 | $ | 2.00 | |||||
Husky | 10,000 | $ | 35 | $ | 4.50 | $ | 4.00 | |||||
Tiger | 7,000 | $ | 37 | $ | 5.10 | $ | 6.00 | |||||
Stuffing/finishing kits | 18,000 | $ | 22 | $ | 3.50 | $ | 1.00 | |||||
The following additional information is available: |
a. | The company’s plant has a capacity of 12,250 direct labour-hours per year on a single-shift basis. The company’s current employees and equipment can produce all five products. |
b. | The direct labour rate of $10.00 per hour is expected to remain unchanged during the coming year. |
c. | Fixed costs total $195,000 per year. Variable overhead costs are $3.00 per direct labour-hour. |
d. | All of the company’s non-manufacturing costs are fixed. |
e. | The company’s finished goods inventory is negligible and can be ignored. |
Required: | |
1. | Determine the contribution margin per direct labour-hour expended on each product (the profitability index). (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
2. | Prepare a schedule showing the total direct labour-hours that will be required to produce the units estimated to be sold during the coming year. |
4. | What is the highest price, in terms of a rate per hour, that Stuffin’ Such should be willing to pay for additional capacity (that is, for added direct labour time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |