# ​Acc203 Managerial Accounting: P8-20 The East Division of Kensic Company manufactures

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Acc203 Managerial Accounting

PROBLEM 8-20 Integrated Operating Budgets
The East Division of Kensic Company manufactures a vital component that is used in one of Kensic’s major product lines. The East Division has been experiencing some difficulty in coordinating activities between its various departments, which has resulted in some shortages of the component at critical times. To overcome the shortages, the manager of East Division has decided to initiate a monthly budgeting system that is integrated between departments.,The first budget is to be for the second quarter of the current year.
To assist in creating the budget, the divisional controller has accumulated the following information:
Sales: Sales through the first three months of the current year were 30,000 units. Actual sales in units for January, February, and March, and planned sales in units over the next five months, are given below:
January (actual) 6,000
February (actual) 10,000
March (actual) 14,000
April (planned) 20,000
May (planned) 35,000
June (planned) 50,000
July (planned) 45,000
August (planned) 30,000
In total, the East Division expects to produce and sell 250,000 units during the current year.
Direct Material: Two different materials are used in the production of the component. Data regarding these materials are given below:
Direct Material Units of Direct Material per Finished Component Cost per lb/ft Inventory at 3/31/2016
No. 208 4 pounds 5.00 46,000 pounds
No. 311 9 feet 2.00 69,000 feet
Material No. 208 is sometimes in short supply. Therefore, the East Division requires that enough of the material be on hand at the end of each month to provide for 50% of the following month’s production needs.
Material No. 311 is easier to get, so only one-third of the following month’s production needs must be on hand at the end of each month.
Direct Labor: The East Division has three departments through which the components must pass before they are completed.
Department Direct Labor-Hours per finished component Cost per DLH
Shaping 0.25 \$18.00
Assembly 0.70 \$16.00
Finishing 0.10 \$20.00
Manufacturing Overhead: East Division manufactured 32,000 components during the first three months of the current year. The actual variable overhead costs incurred during this three-month period are shown below. East Division’s controller believes that the variable overhead costs incurred during the last nine months of the year will be at the same rate per component as experienced during the first three months.
Utilities 57,000
Indirect labor 31,000
Supplies 16,000
Other 8,000
The actual fixed manufacturing overhead costs incurred during the first three months was \$1,170,000. The East Division has budgeted fixed manufacturing overhead costs for the entire year as follows:
Supervision 872,000
Property tax 143,000
Depreciation 2,910,000
Insurance 631,000
Other 72,000