Utease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product.
The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on
direct labor hours, are as follows:
| Manufacturing costs (per unit based on expected activity of 35,000 units or 45,500 direct labor hours): | |||
| Direct materials (2.0 pounds at $12) | $ | 24 | |
| Direct labor (1.3 hours at $80) | 104 | ||
| Variable overhead (1.3 hours at $10) | 13 | ||
| Fixed overhead (1.3 hours at $20) | 26 | ||
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| Standard cost per unit | $ | 167 | |
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| Budgeted selling and administrative costs: | |||
| Variable | $ | 3 | per unit |
| Fixed | $ | 1,600,000 | |
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| Expected sales activity: 31,000 units at $300 per unit |
| Desired ending inventories: 18% of sales |
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Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity: |
| Units produced | 34,000 | ||
| Units sold | 32,500 | ||
| Unit selling price | $ | 295 | |
| Direct labor hours worked | 43,700 | ||
| Direct labor costs | $ | 3,539,700 | |
| Direct materials purchased | 72,000 | pounds | |
| Direct material costs | $ | 864,000 | |
| Direct material used | 72,000 | pounds | |
| Actual fixed overhead | $ | 1,300,000 | |
| Actual variable overhead | $ | 355,000 | |
| Actual selling and administrative costs | $ | 1,793,000 | |
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In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.
1. Prepare a production budget for the coming year based on the available standards, expected sales, and desired ending inventories
2. Prepare a budgeted responsibility income statement for the Bellingham plant for the coming year
3. Find the direct labor variances. Indicate if the are favorable or unfavorable and why they would be considered as such.
Labor efficiency variance?
Labor rate variance?
4. Find the direct materials variancecs (materials price variance and quantity variance).
5. Find the total over- or -underapplied (both fixed and variable) overhead. Would cost of goods sold be a larger or smaller expense item after the adjustment
for the over- or- underapplied overhead?
6. Calculate the actual plant operating profit fot the year
7. Prepare a flexible budget fot eh Bellingham plant for its first year of operations.
8. Assume Utease Corporation is planning to change its evaluation of business operations in all plants from the profit center format to the investment center
format. If the average invested capital at the Bellingham plant is $9,430,000, compute the return on investment (ROI) for the first year of operations. Use the
DuPont method of evaluation to compute the return on sales (ROS) and capital turnover (CT) for the plant.
