Principles of Cost Accounting: Week 7 (P7-2, P7-3, P7-6)

Principles of Cost Accounting
Week 7 (P7-2, P7-3, P7-6)

Glide Tire Company's budgeted unit sales for the year 2008 were:
Passenger car tires 120,000
Truck tires 25,000
The budgeted selling price for truck tires was $200 per tire and for passenger car tires was $65 per tire. He beginning finished goods inventories was expected to be 2,000 truck tires and 5,000 passenger tires, for a total cost of $326,478, with desired ending inventories at 2,500 and 6,000, respectively, with a total cost of $400,510. There was no anticipated beginning or ending work in process inventory for either type of tire.
The standard materials quantities for each type of fire were as follows:
Truck Passenger
Car Rubber 30lbs 10 lbs
Steel belts 4 lbs 1.5 lbs
The purchase prices of rubber and steel were $2 and $3 per pound, respectively. The desired ending inventories for rubber and steel were 75,000 and 7,500 pounds respectively. The estimated beginning inventories for rubber and steel were 60,000 and 6,000 pounds, respectively.
The direct labor hours required for each type of tire were as follows:
Molding Department Finishing Department
Truck Tire 0.25 0.15
Passenger car tire 0.10 0.05

The direct labor rate for each department is as follows:
Molding department $15 per hour
Finishing department $13 per hour

Budgeted factory overhead costs for 2008 were as follows:
Indirect materials 198,500
Indirect labor 213,200
Depreciation of building and equipment 157,500
Power and light 122,900
Total 692,100

Prepare each of the following budgets for Glide for the year ended 2008:
1. Sales budget
2. Production budget
3. Direct material budget
4. Direct labor budget
5. Factory overhead budget
6. Cost of goods sold budget

P7-3 Selling and administrative expenses budget and budgeted income statement
A listing of budgeted selling and administrative expenses for Glide Tire Company in P7-2 for the year ended December 31, 2008, were as follows:
Advertising expense 942,000
Office rent expense 125,000
Office salaries expense 821,000
Office supplies expense 45,500
Officers' salaries expense 661,000
Sales salaries expense 988,000
Telephone and fax expense 33,500
Travel expense 443,000
Prepare a selling and administrative expenses budget, in good form, for the year 2008.

P7-6 Flexible budget for factory overhead
Presented below are the monthly factory overhead cost budget (at normal capacity of 5,000 units or 20,000 direct labor hours) and the production and cost data for a month.
Factory Overhead Cost Budget
Fixed cost:
Depreciation on building and machinery 1,200
Taxes on building and machinery 500
Insurance on building and machinery 500
Superintendent's salary 1,500
Supervisors' salaries 2,300
Maintenance wages 1,000 7,000
Variable cost:
Repairs 400
Maintenance supplies 300
Other supplies 200
Payroll taxes 800
Small tools 300 2,000
Total standard factory overhead $9,000

1. Assuming that variable costs will vary in direct proportion to the change in volume, prepare a flexible budget for production levels of 80%, 90% and 110% of normal capacity. Also determine the rate for application of factory overhead to work in process at each level of volume in both units and direct labor hours.
2. Prepare a flexible budget for production levels of 80%, 90% and 110%, assuming that variable costs will vary in direct proportion to the change in volume, but with the following exceptions. (Hint: Set up a third category for semifixed expenses).
a. At 110% of capacity, an assistant department head will be needed at a salary of $10,500 annually.
b. At 80% of capacity, the repairs epxense will drop to one-half of the amount at 100% capacity.
c. Maintenance supplies expense will remain constant at all levels of production.
d. At 80% of capacity, one part-time maintenance worker, earning $6,000 a year, will be laid off.
e. At 1105% of capacity, a machine not normally in use and on which no depreciation is normally recorded will be used in production. Its cost was $12,000, it has a ten-year life, and straight-line depreciation will be taken.
3. Using the facts and the flexible budget prepared in 1., determine the budgeted cost at 96% of capacity, using interpolation.
4. Using the flexible budget prepared in 1., determine the budgeted cost at 104% capacity, using a method other than interpolation.
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