The Current Designs staff has prepared the annual manufacturing budget for the r

Question

The Current Designs staff has prepared the annual manufacturing budget for the rotomolded line based on an estimated annual production of 4,000 kayaks during 2017. Each kayak will require 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kit cost S170 each. Each kayak will use two kinds of labor - 2 hours of type I labor from people who run the oven and trim the plastic, and 3 hours of work from type II workers who attach the hatches and seat and other hardware. The type I employees are paid $15 per hour, and the type II are paid S12 per hour Manufacturing overhead is budgeted at $386,000 for 2017, as follows. Variable costs Indirect materials Manufacturing supplies Maintenance and utilities S40,000 53,800 88,000 181,800 Fixed costs Supervision Insurance Depreciation 80,000 14,400 109,800 204,200 S386,000 Total During the first quarter, ended March 31, 2017, 1,050 units were actually produced with the following costs. Polyethylene powder Finishing kits Type I labor Type II labor Indirect materials Manufacturing supplies Maintenance and utilities Supervision Insurance Depreciation $89,500 178,840 31,500 39,060 10,500 14,150 26,000 20,000 3,600 27,450

Explanation / Answer

A. Annual Manufacturing budget for 4000 Kayaks Unites to be Produced Calculation 4000 kayaks Amount budgeted COSTS Variable Cost Polyethelene Powder 54 Pound* 1.5 Per Pound * 4000 Kayaks 324000 Finishing Kits 170 per kit * 4000 Kayaks 680000 Labor- Type I 2 Hour per kayaks* 4000 kayaks* 15 Per hour 120000 Labor- Type II 3 Hour per kayaks* 4000 kayaks* 12 Per hour 144000 Indirect material 40000 Manufacturing Supplies 53800 Maintenance and utilites 88000 Total Variable Cost 1449800 Fixed Cost Supervision 80000 Insurance 14400 Depreciation 109800 Total Fixed Cost 204200 Total Cost 1654000 B. Flexible budget for 800,1000,1050 Levels Units to be produced 800 Kayaks 1000 Kayaks 1050 Kayaks COSTS Variable Cost Polyethelene Powder 64800 81000 85050 Finishing Kits 136000 170000 178500 Labor- Type I 24000 30000 31500 Labor- Type II 28800 36000 37800 Indirect material 8000 10000 10500 Manufacturing Supplies 10760 13450 14122.5 Maintenance and utilites 17600 22000 23100 Total Variable Cost 289960 362450 380572.5 Fixed Cost Supervision 20000 20000 20000 Insurance 3600 3600 3600 Depreciation 27450 27450 27450 Total Fixed Cost 51050 51050 51050 Total Cost 341010 413500 431622.5 C. Rotomolded line is trated as a profit centre, Flexible budget for 1050 units Budget Actual Costs Difference Units to be produced 1050 Kayaks 1050 Kayaks F= Favorable U= Unfavorable COSTS Variable Cost Polyethelene Powder 85050 89500 4450(A) Finishing Kits 178500 178840 340(A) Labor- Type I 31500 31500 0 Labor- Type II 37800 39060 1260(A) Indirect material 10500 10500 0 Manufacturing Supplies 14122.5 14150 27.5(A) Maintenance and utilites 23100 26000 2900(A) Total Variable Cost 380572.5 389550 8977.5(A) Fixed Cost Supervision 20000 20000 0 Insurance 3600 3600 0 Depreciation 27450 27450 0 Total Fixed Cost 51050 51050 0 Total Cost 431622.5 440600 8977.5(A)

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