1. Linda is selling rice krispy treats for $10 per tin. She had originally budge
ID: 2551078 • Letter: 1
Question
1. Linda is selling rice krispy treats for $10 per tin.
She had originally 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.
You approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.
Linda has asked for you to calculate a flexible manufacturing overhead budget assuming an annual level of 230,000 units instead of 200,000.
Your first task consists of the following: Linda wants to know if you can make a flexible budgets that is calculated on a monthly basis for 20,000 units. What would be the total fixed manufacturing overhead costs for this new level?
Also, given an annual master budget of 200,000 units with actual production of 210,000 units, you have been asked by Linda to formulate a flexible budget report. What will be the total manufacturing overhead costs at the budgeted level?
Explanation / Answer
Yes, a flexible budget can be made on a monthly basis for an activity level of 20,000 units.
Fixed manufacturing overhead = $ 15,000
Variable manufacturing overhead = $ 85,000 / 200,000 tins = $ 0.425 per tin
Total fixed manufacturing overhead per month (20,000 units) = $ 15,000 / 12 = $ 1,250.
Flexible Budget Report
Flexible Budget Volume Variance Static Budget Activity Level 210,000 units 200,000 units Sales $ 2,100,000 $ 100,000 F $ 2,000,000 Variable Costs Direct Materials 1,260,000 60,000 U 1,200,000 Direct Labor 315,000 15,000 U 300,000 Variable Manufacturing Overhead 89,250 4,250 U 85,000 Operating Expenses 16,800 800 U 16,000 Total Variable Costs 1,681,050 80,050 U 1,601,000 Contribution Margin 418,950 19,950 F 399,000 Less: Fixed Manufacturing Overhead 15,000 NA 15,000 Operating Expenses 64,000 NA 64,000 Total Fixed Costs 79,000 NA 79,000 Net Operating Income 339,950 19,950 F 320,000Related Questions
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