Direct labor hours

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Reference no: EM13837322

Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 2015:

Level of Activity

Driver: Direct Labor Hours

50,000

100,000

Direct materials

$ 300,000

$ 600,000

Direct labor

200,000

400,000

Depreciation (plant)

100,000

100,000

Subtotal

$ 600,000

$1,100,000

Driver: Machine Hours

200,000

300,000

Maintaining equipment

$ 360,000

$ 510,000

Machining

112,000

162,000

Subtotal

$ 472,000

$ 672,000

Driver: Material Moves

20,000

40,000

Moving materials

$ 165,000

$ 290,000

Driver: Number of Batches Inspected

100

200

Inspecting products

$ 125,000

$ 225,000

Total

$1,362,000

$2,287,000

 

During 2015, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred:

Direct materials $440000

direct labor $355000

depreciation  $100000

Maintaining equipment $425000

Machining  142000

Moving Materials 232500

inspecting products 160000

 

Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates.

One of Marston's managers said the following: "Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at $10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of $30,000 per year. Also, I know that fuel costs about $0.25 per move."

QUESTION:

Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)

What is the cost per unit when there are 20000 moves?

What is the cost per unit when there are 40000 moves?

Reference no: EM13837322

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