An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Att

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.

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.)

Explanation / Answer

Flexible manufacturing overhead budget for 230,000 units is = Fixed component+230,000 * variable component of manufacturing overhead

=$15,000+0.425 *230000

=$15,000+$97,750

=$112,750.

Total variable manufacturing overhead cost =20,000 units*12*0.425

=$102,000.

Particulars Expected cost @ 200000 units level (A) Variable component (B) Fixed component (C ) Per unit variable cost (B/200000) Annual manufacturing overhead (85% varible cost) 100000 85000 15000 0.425 Operating expenses (20% variable costs) 80000 16000 64000 0.08 Total cost of manufacturing overhead, Operating expenses 180000 101000 79000

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