Reference no: EM13828286

Objectives:

1.         Apply accounting manufacturing concepts to an actual product to solidify the learning process.

2.         Learn how all the numbers fit together.

3.         Develop decision making analysis techniques.

Manufacturing Questions Instructions:

1. This project should stand by itself.  Include the questions with your submission--not just the answers.  Identify all numbers.  Points will be deducted if I can't understand what you are answering.
2. You may use Excel to complete tables and/or answer questions.  Just make sure you label your work and turn the Excel file in.
3. You may discuss this project with classmates.  A discussion board will be set up for this project.  Try to get help from classmates first.  Your professor will only provide limited individual help. 

Your information:

1. 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)

1. Information on the direct materials is listed in table 1. Consider this information the standard.    

1.  Direct labor information given in Table 2.  Consider this information the standard. 

1. 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.

1. 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).

1. Table 5 is where you will list all your production cost, separated into their fixed and variable components.

1. Cost-Volume-Profit (CVP) Relationships

a.    Selling Price:  You sell a bag of chips for $4.80

b.   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

c.    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.

                                                              i.      Aggressive Profit ($100,000)

                                                            ii.      Conservative Profit ($25,000)

                                                          iii.      Average Profit ($66,500)

Budgeting: 

a.                   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.

b.                  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.

1. Running quarter one -- Weighted-average process costing.  Table 8 presents the information for the packaging department.  Complete the questions under table 8.

1. Actuals are in for quarter one.  You sold 25% more units than you budgeted for, but price per unit was only $4.5.

a.                   Calculate revenue

b.                  Compute the cost of goods sold (total and per unit) before adjusting for actual OH cost

1. Actual potato usage for quarter one was 68,000 pounds at a price of $0.45 per pound. Actual equivalent units of production (bags of chips) completed through the first process (where the potatoes are added) was 29,520.  Calculate the direct materials variances for the potatoes (price, usage, and total) and indicate if these variances are favorable or unfavorable.

1. Actual direct labor hours for the quarter were 4,830 at an average rate of $12.15 per hour.  For actual production you expected to use 4,200 direct labor hours.  Calculate the direct labor variances (rate, efficiency and total) and indicate if these variances are favorable or unfavorable. 

1. For next quarter you have been asked to supply a special order of you potato chips.  The non-profit organization requesting this order would like a special bag that will cost $0.20 instead of the normal $0.10 per bag.  The request is for 10,000 bags of chips.  Based on your projections you have the capacity for this order.  What is the minimum price per unit and total price you would be willing to accept on this order?  (You cannot afford to take this offer at a loss, but you are fine with accepting it at cost).

1. Determine over- or under-applied overhead and close to cost of goods sold.  Actual OH cost are given in table 14 (look at #12 for actual DL hours used to apply OH).  Determine the new cost of goods sold amount. 

Table 1: Direct Materials

 

Material                  Quantity            Cost           Total                                                               per unit                                per unit               

Potatoes	1.5 lbs	$0.50	$0.75
Seasoning	0.1 ounces	$0.50	$0.05
Packaging	1 bag	$0.10	$0.10
	1/12 box	$0.48	$0.04
TOTAL			$0.94

 

Table 2:   Direct Labor

                                                         Hours                   

                                                          Per Bag

       Job Description                         of chips         Rate          Total Cost

Potato Washer  & Peeler	.1	$12.00	$1.20
Slicer & Fryer	.04	$12.00	$0.48
Packager	.05	$12.00	$0.60
Total	0.19		$2.28

 

Table 3:  YEARLY OVERHEAD  COSTS

          Cost  Description                                      Total Cost                             

Indirect Materials	$6,600
Indirect Labor	61,200
Machine Maintenance	4,030
Electricity	3,430
Depreciation	6,340
Quality Testing	10,150
TOTAL	$91,750

 

Predetermined OH rate: 91,750/12,500 = 7.34

Table 4 - Actual Overhead cost for the last two months

 

	Month 1	Month 2
Indirect Material	$550	$550
Indirect Labor	$5100	$5100
Machine Maintenance	$250	$290
Electricity	$200	$240
Depreciation	$528.33	$528.33
Quality Testing	$630	$730
Machine Hours*	1000	1200

*12 minutes of machine time per bag of chips (1/5 hour = 1 unit)

 

 Complete any calculations here:

	Machine Hours	Cost
High Activity	1,200	1020
Low Activity	1,000	880
	200	140
Cost Change to activity	140/200 =	$0.70
High level activity	TVC=$0.70(1,200)=	$840
Low level activity	TVC=$0.70(1,000)=	$700
High level cost associated	a=1,020-840=	180
Low level cost associated	a=88-700=	180
	y=$180+$0.70x	(x=machine hours)

 

 

 Table 5:  Variable and Fixed Costs

 

COSTS Description                  VARIABLE Cost per unit                    FIXED Cost per Year           

Direct Material (DM)	0.94
Direct Labor (DL)	2.28
Depreciation		6,340
Electricity	0.2
Quality Testing & Machine Maintenance	0.7	180
Indirect material		6,600
Indirect labor		61,200
TOTAL	4.12	74,320

If a cost is mixed, put the fixed amount in the fixed column and the variable amount in the variable column.

 

CVP Calculations:

Fixed Cost: 74,320

Variable cost: 4.12

Price per unit: 4.80

 

Breakeven Point in Sales Units(x)

=Fixed price/(Price per unit-variable cost)

=74,320 / (4.80-4.12)

= 109,295 units

Breakeven Point in Sales Dollars = 109,295*4.80 = 524,616

Profit Planning

i.       Aggressive Profit (74,320+100,000) / (4.80-4.12) = 256,353

ii.     Conservative Profit (71,292+25,000)/(4.80-4.12)= 146,059

iii.  Average Profit (74,320+66,500) / (4.80-4.12)= 207,088

Table 6 - Sales Budget

 

	Qtr 1	Qtr 2	Qtr 3	Qtr 4	Total
Sales forecast	51,772	51,772	51,772	51,772	207,088
Price	4.80	4.80	4.80	4.80	4.80
Sales Budget	248,505.60	248,505.60	248,505.60	248,505.60	994,022.40

 

 

Table 7 - Production Budget

 

	Qtr 1	Qtr 2	Qtr 3	Qtr 4
Sales	51,772	51,772	51,772	51,772
Des End Inv	5177	5177	5177	3,000
Needs	56,949	56,949	56,949	54,772
Beg Inv		5177	5177	5177
Production	56,949	51,772	51,772	49,595

 

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	$110.40	$1931.85	$1152.95
Transferred In	30,000	$63,250
End WIP	2,200 (30% complete)

Added during Qtr 1:

Direct Materials -- $4,835.02

Direct Labor - 1,580 hrs @ $12.15 per hour

Overhead - OH is applied based on predetermined OH rate and actual DL hours

1. Determine the number of units completed during quarter 1.

          28,000 units completed

2. Compute the equivalent units using the weighted average method

          29,460 equivalent units

3. Compute the cost per equivalent unit using the weighted average method

          2.37 cost per equivalent unit

4. Compute the cost of goods transferred to finished goods inventory

          66,360

5. Compute the ending balance in WIP, Packaging

          1564.20

 

Table 10 - Actual Results (calculate revenue and COGS)

 

Units sold	Sales Price	Revenue
51772*1.25=64,715	4.5	291,217
Units sold	Cost per unit	COGS
64,715	2.37	153,374

Table 11 - DM Variances (potatoes only)

Price Variance
Usage Variance
Total Variance

Calculations

Table 12 - Direct Labor Variances

 

Rate Variance
Efficiency Variance
Total Variance

#13 Calculations (Minimum price on special order)

Table 14 - Actual OH cost for Quarter 1

Description	Cost
Indirect Materials	$1,780
Indirect Labor	$17,250
Machine Maintenance	$1,552
Electricity	$1325
Depreciation	$1,585
Quality Testing	$4,615

Amount of applied OH:

Amount of actual OH:

Under or Over- Applied Amount:

New COGS amount: