Feeling Better Medical Inc., a manufacturer of disposable medical supplies, prepared the following factory overhead cost budget for the Assembly Department for October 2014. The company expected to operate the department at 100% of normal capacity of 30,000 hours.

$$\begin{array}{lrr} \text{Variable costs:}\\ \hspace{10pt}\text{Indirect factory wages}&\$\hspace{5pt}\text{247,500}\\ \hspace{10pt}\text{Power and light}&\text{189,000}\\ \hspace{10pt}\text{Indirect materials}&\underline{\hspace{15pt}\text{52,500}}\\ \hspace{20pt}\text{Total variable cost}&&\$\hspace{10pt}\text{489,000}\\ \text{Fixed costs:}\\ \hspace{10pt}\text{Supervisory salaries}&\$\hspace{5pt}\text{126,000}\\ \hspace{10pt}\text{Depreciation of plant and equipment}&\text{70,000}\\ \hspace{10pt}\text{Insurance and property taxes}&\underline{\hspace{15pt}\text{44,000}}\\ \hspace{20pt}\text{Total fixed cost}&&\underline{\hspace{15pt}\text{240,000}}\\ \text{Total factory overhead cost}&&\underline{\underline{\$\hspace{10pt}\text{729,000}}}\\ \end{array}$$

During October, the department operated at 28,500 hours, and the factory overhead costs incurred were indirect factory wages, $234,000 power and light,$178,500 indirect materials, $50,600 supervisory salaries,$126,000 depreciation of plant and equipment, $70,000 and insurance and property taxes,$44,000.

Prepare a factory overhead cost variance report for October. To be useful for cost control, the budgeted amounts should be based on 28,500 hours.

Feeling Better Medical Inc., a manufacturer of disposable medical supplies, prepared the following factory overhead cost budget for the Assembly Department for October of the current year. The company expected to operate the department at 100% of normal capacity of 30,000 hours.

$$\begin{array}{lrr} \text{Variable costs:} \\ \quad\text{Indirect factory wages} & \$247,500\\ \quad \text{Power and light} & 189,000\\ \quad\text{Indirect materials} & \underline{52,500}\\ \quad\quad\text{Total variable cost} && \$489,000\\ \text{Fixed costs:} \\ \quad\text{Supervisory salaries} & \$126,000\\ \quad\text{Depreciation of plant and equipment} & 70,000\\ \quad\text{Insurance and property taxes} & \underline{44,000}\\ \quad\quad\text{Total fixed cost} && \underline{240,000}\\ \text{Total factory overhead cost} && \underline{\underline{\$729,000}} \end{array}$$

During October, the department operated at 28,500 hours. The factory overhead costs incurred were indirect factory wages, $234,000; power and light,$178,500; indirect materials, $50,600; supervisory salaries,$126,000; depreciation of plant and equipment, $70,000; and insurance and property taxes,$44,000.

Instructions

Prepare a factory overhead cost variance report for October. To be useful for cost control, the budgeted amounts should be based on 28,500 hours.

Kara Oaks manages the cabinetry department. She has been asked to take measurements for a set of custom cabinets made of cherry wood. The side panel is $32 \frac{1}{4}$ inches tall. The width of each side panel is $14 \frac{1}{2}$ inches.

Find the total area of cherry wood needed for all six side panels in square inches.

Lenni Clothing Co. manufactures clothing in a small manufacturing facility. Manufacturing has 25 employees. Each employee presently provides 40 hours of productive labor per week. Information about a production week is as follows:

$$\begin{array}{lr} \text { Standard wage per hr. } & \$ 12.00 \\ \text { Standard labor time per unit } & 12 \mathrm{~min} . \\ \text { Standard number of yds. of fabric per unit } & 5.0 \mathrm{yds} . \\ \text { Standard price per yd. of fabric } & \$ 5.00 \\ \text { Actual price per yd. of fabric } & \$ 5.10 \\ \text { Actual yds. of fabric used during the week } & 26,200 \mathrm{yds} . \\ \text { Number of units produced during the week } & 5,220 \\ \text { Actual wage per hr. } & \$ 11.80 \\ \text { Actual hrs. for the week } & 1,000 \mathrm{hrs} . \end{array}$$

Determine (A) the standard cost per unit for direct materials and direct labor; (B) the price variance, quantity variance, and total direct materials cost variance; and (C) the rate variance, time variance, and total direct labor cost variance.

The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for February is summarized as follows:

A. Estimated sales of King and Prince chairs for February by sales territory:

$$\begin{array}{lr} \text{Northern Domestic: King...........................................}&\text{610 units at \$780 per unit}\\ \text{Prince .........................................}&\text{ 750 units at \$550 per unit}\\ \text{Southern Domestic:}\\ \text{King...........................................}&\text{340 units at \$780 per unit}\\ \text{Prince .........................................}&\text{440 units at \$550 per unit}\\ \text{International:}\\ \text{King...........................................}&\text{360 units at \$850 per unit}\\ \text{Prince .........................................}& \text{290 units at \$600 per unit}\\ \end{array}$$

1. Prepare a sales budget for February.
2. Prepare a production budget for February.
3. Prepare a direct materials purchases budget for February.
4. Prepare a direct labor cost budget for February.

The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

$$\begin{array}{lrrr} \textbf{\hspace{20pt}}&\hspace{5pt}\textbf{June}\hspace{5pt}&\hspace{5pt}\textbf{July}\hspace{5pt}&\hspace{5pt}\textbf{August}\\\hline \text{Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\$\hspace{5pt}\text{160,000}&\text{\$\hspace{5pt}185,000}&\text{\$\hspace{5pt}200,000}\\ \text{Manufacturing costs . . . . . . . . . . . . . . . . . . .}&\hspace{5pt}\text{66,000}&\text{82,000}&\text{105,000}\\ \text{Selling and administrative expenses . . . . . . .}&\text{40,000}&\text{46,000}&\text{51,000}\\ \text{Capital expenditures . . . . . . . . . . . . . . . . . . .}&&&\text{120,000}\\ \end{array}$$

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent $12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of June 1 include cash of$42,000, marketable securities of $25,000, and accounts receivable of$198,000 ($150,000 from May sales and$48,000 from April sales). Sales on account in April and May were $120,000 and$150,000, respectively. Current liabilities as of June 1 include $13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of$24,000 will be made in July. Mercury Shoes’ regular quarterly dividend of $15,000 is expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of$40,000.

Instructions

1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2014.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

The budget director of Royal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for February 2014 is summarized as follows:

a. Estimated sales of King and Prince chairs for February by sales territory:

$$\begin{array}{ll} \text{Northern Domestic:}\\ \hspace{20pt}\text{King . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{610 units at \$780 per unit}\\ \hspace{20pt}\text{Prince . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{750 units at \$550 per unit}\\ \text{Southern Domestic:}\\ \hspace{20pt}\text{King . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{340 units at \$780 per unit}\\ \hspace{20pt}\text{Prince . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{440 units at \$550 per unit}\\ \text{International:}\\ \hspace{20pt}\text{King . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{360 units at \$850 per unit}\\ \hspace{20pt}\text{Prince . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{290 units at \$600 per unit}\\ \end{array}$$

b. Estimated inventories at February 1:

$$\begin{array}{lllll} \text{Direct materials:}&&&\text{Finished products:}\\ \hspace{10pt}\text{Fabric . . . . . . . . . . . . . . . .}&\text{420 sq. yds}&&\hspace{10pt}\text{King . . . . . . . . . .}&\text{90 units}\\ \hspace{10pt}\text{Wood . . . . . . . . . . . . . . . . .}&\text{580 linear ft.}&&\hspace{10pt}\text{Prince . . . . . . . . .}&\text{25 units}\\ \hspace{10pt}\text{Filler . . . . . . . . . . . . . . . . .}&\text{250 cu. ft.}\\ \hspace{10pt}\text{Springs . . . . . . . . . . . . . . .}&\text{660 units}\\ \end{array}$$

c. Desired inventories at February 28:

$$\begin{array}{lllll} \text{Direct materials:}&&&\text{Finished products:}\\ \hspace{10pt}\text{Fabric . . . . . . . . . . . . . . . .}&\text{390 sq. yds}&&\hspace{10pt}\text{King . . . . . . . . . .}&\text{80 units}\\ \hspace{10pt}\text{Wood . . . . . . . . . . . . . . . . .}&\text{650 linear ft.}&&\hspace{10pt}\text{Prince . . . . . . . . .}&\text{35 units}\\ \hspace{10pt}\text{Filler . . . . . . . . . . . . . . . . .}&\text{300 cu. ft.}\\ \hspace{10pt}\text{Springs . . . . . . . . . . . . . . .}&\text{540 units}\\ \end{array}$$

d. Direct materials used in production:

$$\begin{array}{ll} \text{In manufacture of King:}\\ \hspace{20pt}\text{Fabric . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{6.0 sq. yds. per unit of product}\\ \hspace{20pt}\text{Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . }&\text{38 linear ft. per unit of product}\\ \hspace{20pt}\text{Filler . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{4.2 cu. ft. per unit of product}\\ \hspace{20pt}\text{Springs. . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{16 units per unit of product}\\ \text{In manufacture of Prince:}\\ \hspace{20pt}\text{Fabric . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{4.0 sq. yds. per unit of product}\\ \hspace{20pt}\text{Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . }&\text{26 linear ft. per unit of product}\\ \hspace{20pt}\text{Filler . . . . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{3.4 cu. ft. per unit of product}\\ \hspace{20pt}\text{Springs. . . . . . . . . . . . . . . . . . . . . . . . . .}&\text{12 units per unit of product}\\ \end{array}$$

e. Anticipated purchase price for direct materials:

$$\begin{array}{lllll} \hspace{10pt}\text{Fabric . . . . . . . . . . . . .}&\text{\$12.00 per sq. yd.}&&\hspace{10pt}\text{Filler . . . . . . . . . . . . . . . . . .}&\text{\$3.00 per cu. ft.}\\ \hspace{10pt}\text{Wood . . . . . . . . . . . . . .}&\text{7.00 per linear ft.}&&\hspace{10pt}\text{Springs . . . . . . . . . . . . . . . . .}&\text{4.50 per unit}\\ \end{array}$$

f. Direct labor requirements:

$$\begin{array}{ll} \text{King:}\\ \hspace{20pt}\text{Framing Department. . . . . . . . . . . . . . . . . .}&\text{1.2 hrs. at \$12 per hr.}\\ \hspace{20pt}\text{Cutting Department . . . . . . . . . . . . . . . . . . }&\text{0.5 hr. at \$14 per hr.}\\ \hspace{20pt}\text{Upholstery Department . . . . . . . . . . . . . . . . . }&\text{0.8 hr. at \$15 per hr.}\\ \text{Prince:}\\ \hspace{20pt}\text{Framing Department. . . . . . . . . . . . . . . . . .}&\text{1.0 hr. at \$12 per hr.}\\ \hspace{20pt}\text{Cutting Department . . . . . . . . . . . . . . . . . . }&\text{0.4 hr. at \$14 per hr.}\\ \hspace{20pt}\text{Upholstery Department . . . . . . . . . . . . . . . . . }&\text{0.6 hr. at \$15 per hr.}\\ \end{array}$$

Instructions

1. Prepare a sales budget for February.
2. Prepare a production budget for February.
3. Prepare a direct materials purchases budget for February.
4. Prepare a direct labor cost budget for February.

Sole Mates Inc. is planning a one-month campaign for July to promote sales of one of its two shoe products. A total of $100,000 has been budgeted for advertising, contests, redeemable coupons, and other promotional activities. The following data have been assembled for their possible usefulness in deciding which of the products to select for the campaign:

$$\begin{array}{lcr} & \begin{array}{c} \text { Tennis } \\ \text { Shoes } \end{array} & \begin{array}{c} \text { Walking } \\ \text { Shoes } \end{array} \\ \hline \text { Unit selling price } & \$ 85 & \$ 100 \\ \text { Unit production costs: } & \underline{\$ 19} & \$ 32 \\ \quad \text { Direct materials } & 8 & 12 \\ \text { Direct labor } & 7 & 5 \\ \quad \text { Variable factory overhead } & 16 & 11 \\ \quad \text { Fixed factory overhead } & \$ 50 & \$ 60 \\ \quad \text { Total unit production costs } & 6 & 10 \\ \text { Unit variable selling expenses } & 20 & 15 \\ \text { Unit fixed selling expenses } & \$ 19 \end{array}$$

No increase in facilities would be necessary to produce and sell the increased output. It is anticipated that 7,000 additional units of tennis shoes or 7,000 additional units of walking shoes could be sold without changing the unit selling price of either product.

1. Prepare a differential analysis as of June 19 to determine whether to promote tennis shoes (Alternative 1) or walking shoes (Alternative 2).
2. The sales manager had tentatively decided to promote walking shoes, estimating that operating income would be increased by $5,000 ($15 operating income per unit for 7,000 units, less promotion expenses of $100,000). The manager also believed that the selection of tennis shoes would reduce operating income by$37,000 ($9 operating income per unit for 7,000 units, less promotion expenses of$100,000). State briefly your reasons for supporting or opposing the tentative decision.

Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows:

$$\begin{array}{lccc} {\text{}}&\textbf{Type 5}&\textbf{Type 10}&\textbf{Type 20}\\\hline \text{Revenues}&\underline{\$\hspace{10pt}43,000}&\underline{\$\hspace{10pt}49,000}&\underline{\$\hspace{10pt}56,500}\\ \text{Variable cost}&\$\hspace{10pt}34,000&\$\hspace{10pt}28,000&\$\hspace{10pt}26,500\\ \text{Fixed cost}&\underline{\hspace{20pt}8,000}&\underline{\hspace{20pt}8,000}&\underline{\hspace{20pt}8,000}\\ \text{Total cost}&\underline{\$\hspace{10pt}42,000}&\underline{\$\hspace{10pt}36,000}&\underline{\$\hspace{10pt}34,500}\\ \text{Income from operations}&\$\hspace{15pt}1,000&\$\hspace{10pt}13,000&\$\hspace{10pt}22,000\\ \text{Divide: Number of units}&\underline{\hspace{20pt}5,000}&\underline{\hspace{20pt}5,000}&\underline{\hspace{20pt}5,000}\\ \text{Income from operations per unit}&\underline{\underline{\$\hspace{22pt}0.20}}&\underline{\underline{\$\hspace{22pt}2.60}}&\underline{\underline{\$\hspace{22pt}4.40}}\\ \end{array}$$

Mill’s operations require all three grades to be melted in a furnace before being formed. The furnace runs 24 hours a day, 7 days a week, and is a production bottleneck. The furnace hours required per unit of each product are as follows:

$$\begin{array}{lrr} \text{Type 5:}&\text{6 hours}\\ \text{Type 10:}&\text{6 hours}\\ \text{Type 20:}&\text{12 hours}\\ \end{array}$$

The Marketing Department is considering a new marketing and sales campaign. Which product should be emphasized in the marketing and sales campaign in order to maximize profitability?

Calgary Lumber Company incurs a cost of $315 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for$440 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $465 per hbf, which can be sold for$600 per hbf. Prepare a differential analysis dated March 15 on whether to sell rough-cut lumber (Alternative 1) or process further into finished-cut lumber (Alternative 2).

The management of International Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $2,200 per ton, and ingot can be sold without further processing for$1,100 per ton. Ingot is produced in batches of 80 tons by smelting 500 tons of bauxite, which costs $105 per ton of bauxite. Rolled aluminum will require additional processing costs of$620 per ton of ingot, and 1.25 tons of ingot will produce 1 ton of rolled aluminum (due to trim losses).

Instructions

1. Prepare a differential analysis as of February 5, 2014, to determine whether to sell aluminum ingot (Alternative 1) or process further into rolled aluminum (Alternative 2).
2. Briefly report your recommendations.

Spotted Cow Dairy Company manufactures three products—whole milk, skim milk, and cream—in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $299,700.

The three products consume both machine hours and direct labor hours in the two production departments as follows:

$$\begin{array}{lcc} \textbf{Direct Labor Hours}&\textbf{Machine Hours}\\ \hline \textbf{Blending Department}\\ \text{Whole milk}& 260& 650\\ \text{Skim milk}& 245 &710\\ \text{Cream}& 215& 260\\ & 720& 1,620\\\ \textbf{Packing Department}\\ \text{Whole milk}& 470 &500\\ \text{Skim milk}& 300& 415\\ \text{Cream}& 130& 165\\ & 900& 1,080\\ \text{Total}& 1,620 &2,700\\ \end{array}$$

1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (A) direct labor hours and (B) machine hours.
2. Determine the product factory overhead costs, using (A) the direct labor hour plantwide factory overhead rate and (B) the machine hour plantwide factory overhead rate

Hildreth Company uses a job order cost system. The following data summarize the operations related to production for April, the first month of operations:

d. Depreciation of machinery and equipment, $4,100.

1. Journalize the entries to record the summarized operations.
2. Post the appropriate entries to T accounts for Work in Process and Finished Goods, using the identifying letters as transaction codes. Insert memo account balances as of the end of the month.
3. Prepare a schedule of unfinished jobs to support the balance in the work in process account.
4. Prepare a schedule of completed jobs on hand to support the balance in the finished goods account.

Spotted Cow Dairy Company manufactures three products-whole milk, skim milk, and cream-in two production departments, Blending and Packing. The factory overhead for Spotted Cow Dairy is $299,700.

The three products consume both machine hours and direct labor hours in the two production departments as follows:

$$\begin{array}{|c|c|c|} \hline & \text { Direct Labor Hours } & \text { Machine Hours } \\ \hline \text { Blending Department } \\ \hline \text { Whole milk } & 260 & 650 \\ \hline \text { Skim milk } & 245 & 710 \\ \hline \text { Cream } & 215 & 260 \\ \hline & 720 & 1,620 \\ \hline \text { Packing Department } \quad \overline{-} \\ \hline \text { Whole milk } & 470 & 500 \\ \hline \text { Skim milk } & 300 & 415 \\ \hline\text { Cream } & 130 & 165 \\ \hline & 900 & \overline{1,080} \\ \hline \text { Total } & \overline{1,620} & \overline{2,700} \\ \hline \end{array}$$

1. Determine the single plantwide factory overhead rate, using each of the following allocation bases: (a) direct labor hours and (b) machine hours.
2. Determine the product factory overhead costs, using (a) the direct labor hour plantwide factory overhead rate and (b) the machine hour plantwide factory overhead rate.