Your company produces a basic potato chip. There are three main processes used i
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Question
Your company produces a basic potato chip. There are three main processes used in the chips. The first process washes and peels the potatoes. The second process slices and fries the potatoes. The third process seasons and packages the chips. The potato chips are sold in 12 oz bags (1 bag is a unit)
Information on the direct materials is listed in table 1. Consider this information the standard.
Direct labor information given in Table 2. Consider this information the standard.
Annual overhead information is given in Table 3. Overhead is allocated based direct labor hours. Estimated annual direct labor hours are 12,500. Calculate a predetermined OH rate (round to two decimal places if needed). Use this rate when you need to apply OH.
Table 4 gives you the information for the last two months on the overhead cost. Use this information to determine the fixed and variable portions of the cost. (You will need this information to complete Table 5). Machine hours have been determined as the best cost driver for separating mixed cost into their fixed and variable portions. It takes approximately 12 minutes of total machine time for each bag of chips (or 1/5 a machine hour per bag of chips).
Table 5 is where you will list all your production cost, separated into their fixed and variable components.
Cost-Volume-Profit (CVP) Relationships
Selling Price: You sell a bag of chips for $5.14
Breakeven point: Calculate the breakeven point. Be sure to include the fixed component of mixed cost in your fixed costs and the variable component in the variable cost. Show your breakeven in Sales units and in Sales Dollars
Profit Planning: Determine the number of units you must sell to make an annual pre-tax profit using 3 assumptions concerning your net income (profit), both in sales units and sales dollars.
Aggressive Profit ($100,000)
Conservative Profit ($25,000)
Average Profit ($67,500)
Budgeting:
Create a sales budget using the information for earning an average profit for the year.You will break the budget down into the four quarters for the year. (Sales tend to be consistent each quarter, you can only sale a whole unit so round-up if necessary) Use table 6 to complete the sales budget.
Create a production budget for each quarter of the year (keep it in quarters; you do not need to break it down by month).You desire to keep 10% of next quarter’s sales in ending inventory.Sales for Qtr 1 the following year are expected to be 30,000 bags of chips. There is not any beginning finished goods inventory for quarter one. Use table 7 to complete the production budget.
Running quarter one -- Weighted-average process costing. Table 8 presents the information for the packaging department. Complete the questions under table 8.
Actuals are in for quarter one. You sold 25% more units than you budgeted for, but price per unit was only $5.00.
Table 1: Direct Materials
Material
Quantity per unit
Cost
Total per unit
potatoes
1.5 lbs
$0.60
$0.90
seasoning
0.1 ounces
0.05
0.005
packaging
1 bag
0.25
0.25
1/12 box
0.54
0.045
Total cost
$1.20
Table 2: Direct Labor
Job description
Hours per bag
Rate
Total cost
Potato washer & peeler
0.1
$11.50
$1.15
Slicer & Fryer
0.04
11.50
0.46
Packager
0.06
11.50
0.69
Total cost
$2.30
Table 3: YEARLY OVERHEAD COSTS
Cost description
Amount
Indirect material
$6,500
Indirect labor
61,450
Machine Maintenance
4,120
Electricity
3,570
Depreciation
6,340
Quality testing
10,520
Total
92,500
Predetermined OH rate:
92500/12500= 7.40
Table 4 – Actual Overhead cost for the last two months
Month 1
Month 2
Indirect Material (F)
$530
$530
Indirect Labor (F)
5,250
5,250
Machine Maintenance
370
445
Electricity
180
225
Depreciation (F)
625
625
Quality testing
510
600
Machine Hours *
1,200
1,500
*12 minutes of machine time per bag of chips (1/5 hour = 1 unit)
Complete any calculations here:
Maintenance 445-370/300=.25/5 =.05
Electricity 225-180/2-.15/5=.03
QT 600-510/2=.5/5=.06
Table 5: Variable and Fixed Costs
COSTS Description VARIABLE Cost per unit FIXED Cost per Year
Maintenance
.05
840
Electricity
.03
Quality testing
.06
1800
DM
1.20
DL
2.30
Indirect material
6360
Indirect labor
63000
Depreciation
7500
TOTAL
3.64
79500
If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column.
CVP Calculations:
5.14-3.64= 1.5 contribution margin
Break Even = 79500/1.5= 53000 units
CM percent = 1.5/5.14= 29.18%
a. 100000+79500/1.5= 119667 units
b. 25000+79500/1.5= 69667 units
c. 67500+79500/1.5= 98000 units
Please answer the following question the above information is background information:
Running quarter one -- Weighted-average process costing. Table 8 presents the information for the packaging department. Complete the questions under table 8.
Process Costing – Packaging Department
Direct materials are added 70% at the beginning of the process and the remaining 30% are added when the chips are 50% complete with the packaging process. Direct labor and overhead are added evenly throughout the process.
Table 8 – Unit and cost information
Cost
Physical Units
Transferred-in
Direct Materials
Direct Labor
Overhead
Beg WIP
1,000 (40% complete)
$6,500
$112.40
$1,948.85
$1,788.35
Transferred In
30,000
$63,250
End WIP
2,200 (30% complete)
Added during Qtr 1:
Direct Materials -- $5045.40
Direct Labor – 1,580 hrs @ $12.05 per hour
Overhead – OH is applied based on predetermined OH rate and actual DL hours
a.Determine the number of units completed during quarter 1.
b. Compute the equivalent units using the weighted average method
c. Compute the cost per equivalent unit using the weighted average method
d. Compute the cost of goods transferred to finished goods inventory
e. Compute the ending balance in WIP, Packaging
Material
Quantity per unit
Cost
Total per unit
potatoes
1.5 lbs
$0.60
$0.90
seasoning
0.1 ounces
0.05
0.005
packaging
1 bag
0.25
0.25
1/12 box
0.54
0.045
Total cost
$1.20
Explanation / Answer
a) Number of units completed during the Quarter:
Production = Beginning WIP + Transferred in - Closing WIP
= 1,000 units + 30,000 units - 2,200 units
= 28,800 units
b)Equivalent units using weighted average method:
c) Cost per Equivalent units:
d) Cost good transferred to finished goods inventory
$ 28,800 x$ (2.25 + 0.166 + 0.712 + 0.458) = $103,276.8
e) Ending balance in WIP:
Transferred in = 2,200 x $2.25 =$4,950
Material = 2,200 x 0.166 =$365.2
Labour = 660 x 0.712 =$469.92
Overheads = 660 x $0.458 = $302.28
Total $6,087.4
Flow of production Physical units Equivalent units Transferred in Material Labour Overhaeads Beginning WIP 1,000 Transferred in 30,000 units to account for 31,000 Completed and transferred 28,800 28,800 (100%) 28,800 (100%) 28,800 (100%) 28,800 (100%) Ening WIP 2,200 2,200 (100%) 2,200 (100%) 660 (30%) 660 (30%) accounted for 31,000 Equivalent units of work done to date 31,000 31,000 29,460 29,460
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