Packer Company, which has only one product, has provided the following data concerning its most recent month of operations:

  Selling price

$

81

  Units in beginning inventory

300

  Units produced

1,800

  Units sold

1,600

  Units in ending inventory

500

  Variable costs per unit:

     Direct materials

$

19

     Direct labor

$

16

     Variable manufacturing overhead

$

1

     Variable selling and administrative

$

11

  Fixed costs:

     Fixed manufacturing overhead

$

34,200

     Fixed selling and administrative

$

3,200

The company produces the same number of units every month, although the sales in units vary from month to month. The company’s variable costs per unit and total fixed costs have been constant from month to month.

Required:

a.

What is the unit product cost for the month under variable costing?

  Unit product cost

$ 

$ 

$ 

$ 

$ 

$ 

  Expenses:

  Wages and salaries

  Supplies

  Insurance

  Miscellaneous

  Total expenses

  Net operating income

$ 

Vera Corporation bases its budgets on the activity measure customers served. During September, the company planned to serve 28,000 customers, but actually served 27,000 customers. The company has provided the following data concerning the formulas it uses in its budgeting:

Fixed
element
per month

Variable
element
per customer

  Revenue

–

$

5.00

  Wages and salaries

$

35,800

$

1.90

  Supplies

$

0

$

0.60

  Insurance

$

13,000

$

0.00

  Miscellaneous

$

7,500

$

0.20

Required:

Prepare the company’s flexible budget for September based on the actual level of activity for the month.(Input all amounts as positive values.)

Vera Corporation
Flexible Budget
For the Month Ended September 30

  Revenue

$   

b.

Compute the materials price variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  Materials price variance

$   

c.

Compute the labor efficiency variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  Labor efficiency variance

$   

d.

Compute the direct labor rate variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  Labor rate variance

$   

e.

Compute the variable overhead efficiency variance.(Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  Variable overhead efficiency variance

$   

f.

Compute the variable overhead rate variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  Variable overhead rate variance

$   

The management of Rodarmel Corporation is considering dropping product G91Q. Data from the company’s accounting system appear below:

  Sales

$

370,000

  Variable expenses

$

170,000

  Fixed manufacturing expenses

$

118,000

  Fixed selling and administrative expenses

$

89,000

All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $57,000 of the fixed manufacturing expenses and $40,000 of the fixed selling and administrative expenses are avoidable if product G91Q is discontinued.

a.

What is the net operating income(loss) earned by product G91Q according to the company’s accounting system? (Input the amount as a positive value.)

$  by

$ 

$ 

$ 

$ [removed]  

b.

Whether Product C should be eliminated. 

Kramer Company makes 4,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow:

  Direct materials

$

35

  Direct labor

10

  Variable manufacturing overhead

8

  Fixed manufacturing overhead

20

  Total manufacturing cost per unit

$

73

An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost.

a1.

Assume Kramer Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for $65 each, calculate the total cost for making the axial taps.

  Total cost

$ [removed]  

a2.

Should Kramer Company accept the offer?

b.

Assume that Kramer Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps?

  Maximum acceptable price

$ [removed]  

Humes Corporation makes a range of products. The company’s predetermined overhead rate is $16 per direct labor-hour, which was calculated using the following budgeted data:

  Variable manufacturing overhead

$

75,000

  Fixed manufacturing overhead

$

325,000

  Direct labor-hours

25,000

Management is considering a special order for 700 units of product J45K at $64 each. The normal selling price of product J45K is $75 and the unit product cost is determined as follows:

  Direct materials

$

37.00

  Direct labor

18.00

  Manufacturing overhead applied

16.00

  Unit product cost

$

71.00

If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order.

Required:

If the special order were accepted, what would be the impact on the company’s overall profit? 

  Company’s profit

$ [removed]   

[removed]

production equals sales for that period.

[removed]

production exceeds sales for that period.

[removed]

sales exceed production for that period.

[removed]

the variable manufacturing overhead exceeds the fixed manufacturing overhead.

[removed]

the product’s advertising costs.

[removed]

the salary of the corporation president.

[removed]

direct materials costs.

[removed]

the product manager’s salary.

[removed]

$97

[removed]

$130

[removed]

$99

[removed]

$207

13.

Abe Company, which has only one product, has provided the following data concerning its most recent month of operations:

What is the unit product cost for the month under variable costing?

[removed]

$88

[removed]

$99

[removed]

$81

[removed]

$106

[removed]

$237,814

[removed]

$234,952

[removed]

$236,550

[removed]

$234,417

[removed]

$1,200 F

[removed]

$9,625 F

[removed]

$8,425 F

[removed]

$990 U

[removed]

Only I

[removed]

Only II

[removed]

Both I and II

[removed]

Neither I nor II

[removed]

decrease by $20,000 per year

[removed]

increase by $20,000 per year

[removed]

decrease by $10,000 per year

[removed]

increase by $30,000 per year

[removed]

decrease by $60,000 per month

[removed]

increase by $10,000 per month

[removed]

increase by $20,000 per month

[removed]

decrease by $20,000 per month

[removed]

$3 advantage

[removed]

$1 advantage

[removed]

$1 disadvantage

[removed]

$4 disadvantage