An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Att
ID: 2467457 • Letter: A
Question
An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Attack Brownies” (CAB) in their online catalog. CAB will be sold in square tins and captioned with personal greetings. Jordan negotiated a selling price to Yumminess at $10 per tin.
You, using your accounting knowledge, had previously budgeted a cost of $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.
After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.
Jordan wants you to calculate a flexible manufacturing overhead budget assuming an annual level of 230,000 units instead of 200,000.
1. What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.)
2. What would be total fixed manufacturing overhead costs for this new level? (Round to the nearest dollar.)
3. Taylor asks you if flexible budgets can be calculated on a monthly basis. You state, “Of course! Let’s create a monthly manufacturing overhead flexible budget for 20,000 units. Please pass me the brownies!” What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.)
4. Taylor asks you if flexible budgets can be calculated on a monthly basis. You state, “Of course! Let’s create a monthly manufacturing overhead flexible budget for 20,000 units. Please pass me the brownies!” What would be total fixed manufacturing overhead costs for this new level? (Round to the nearest dollar.)
5. Given an annual master budget of 200,000 units with actual production of 210,000 units, you have been tasked to formulate a flexible budget report. What will be total manufacturing overhead costs at the budget level?
Explanation / Answer
Solution:
Annual Manufacturing Overhead based on 200,000 tins = $100,000
Out of this $100,000, 85% are variable and 15% are fixed.
Variable Manufacturing Overheads = $100,000 x 85% = $85,000
Per Unit Variable Manufacturing Overheads = $85,000 / 200,000 = $0.425 per unit
Fixed Manufacturing Overheads = $100,000 x 15% = $15,000
Annual Operating Expenses based on 200,000 tins = $80,000
Out of this $80,000, 20% are variable and 80% are fixed.
Variable Operating Expenses = $80,000 x 20% = $16,000
Per Unit Variable Operating Expenses = $16,000 / 200,000 = $0.08 per unit
Fixed Operating Expenses = $80,000 x 80% = $64,000
1) Total variable manufacturing overhead costs for the new level 230,000 Units
Total Variable Manufacturing Overheads (230,000 x $0.425)
$97,750
Total Variable Operating Expenses (230,000 x $0.08)
$18,400
Total Variable Manufacturing Overhead Costs
$116,150
Note -- Variable Cost vary with the output. Per Unit Variable Cost remain constant irrespective of Output level.
2) Total fixed manufacturing overhead costs for this new level (230,000 Units)
Total Fixed Manufacturing Overheads
$15,000
Total Fixed Operating Expenses
$64,000
Total Fixed Manufacturing Overhead Costs
$79,000
Note – Fixed Cost remains unchanged in totality irrespective of output level. Hence Fixed Cost will remain same as previous level.
3) Monthly manufacturing overhead flexible budget for 20,000 units
Variable Manufacturing Overheads (20,000 x $0.425)
$8,500
Variable Operating Expenses (20,000 x $0.08)
$1,600
Total Monthly Variable Manufacturing Cost
$10,100
Total Annually Variable Manufacturing Cost = Annual Production x ($0.425 + $0.08) = 240,000 x $0.505 = $121,200
4)
Monthly Fixed Manufacturing Overheads ($15,000 / 12)
$1,250
Monthly Fixed Operating Expenses ($64,000 / 12)
$5,333
Monthly Fixed Manufacturing Overhead Cost
$6,583
Total Manufacturing Fixed Cost (Annually) = $79,000
For 5 part -- please ask separate question
Total Variable Manufacturing Overheads (230,000 x $0.425)
$97,750
Total Variable Operating Expenses (230,000 x $0.08)
$18,400
Total Variable Manufacturing Overhead Costs
$116,150
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