Normal costing, overhead allocation, working backward. Gardi ...

[mp14]

Normal costing, overhead allocation, working backward.
 
  Gardi Manufacturing uses normal costing for its job-costing system, which has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost category (manufacturing overhead). The following information is obtained for 2014:
 
   Total manufacturing costs, 8,300,000
   Manufacturing overhead allocated, 4,100,000 (allocated at a rate of 250 of direct manufacturing labor costs)
   Work-in-process inventory on January 1, 2014, 420,000
   Cost of finished goods manufactured, 8,100,000
 
  Required:
  1. Use information in the first two bullet points to calculate (a) direct manufacturing labor costs in 2014 and (b) cost of direct materials used in 2014.
  2. Calculate the ending work-in-process inventory on December 31, 2014.

Question 2

CVP exercises.
 
  The Incredible Donut owns and operates six doughnut outlets in and around Kansas City. You are given the following corporate budget data for next year:
 
  Revenues 10,400,000
  Fixed costs  2,100,000
  Variable costs  7,900,000
 
  Variable costs change based on the number of doughnuts sold.
  Compute the budgeted operating income for each of the following deviations from the original budget data. (Consider each case independently.)
 
  Required:
  1. An 11 increase in contribution margin, holding revenues constant
  2. An 11 decrease in contribution margin, holding revenues constant
  3. A 4 increase in fixed costs
  4. A 4 decrease in fixed costs
  5. A 7 increase in units sold
  6. A 7 decrease in units sold
  7. An 11 increase in fixed costs and a 11 increase in units sold
  8. A 4 increase in fixed costs and a 4 decrease in variable costs
  9. Which of these alternatives yields the highest budgeted operating income? Explain why this is the case.

[Sierray]

Answer to Question 1

1a. Manufacturing overhead allocated = 250  Direct manufacturing labor costs

4,100,000 = 2.50  Direct manufacturing labor costs

Direct manufacturing labor costs = = 1,640,000

b. = + +

8,300,000 = Cost of direct materials used + 1,640,000 + 4,100,000

Cost of direct materials used = 2,560,000

2. + = +

Denote Work in process on 12/31/2014 by X

420,000 + 8,300,000 = 8,100,000 + X

X = 620,000

Work-in-process inventory, 12/31/14 = 620,000.

Answer to Question 2

Revenues
Variable
Costs
Contribution
Margin
Fixed
Costs Budgeted
Operating
Income
Orig. 10,400,000G 7,900,000G 2,500,000 2,100,000G 400,000
1. 10,400,000 7,625,000 2,775,000a 2,100,000 675,000
2. 10,400,000 8,175,000 2,225,000b 2,100,000 125,000
3. 10,400,000 7,900,000 2,500,000 2,184,000c 316,000
4. 10,400,000 7,900,000 2,500,000 2,016,000d 484,000
5. 11,128,000e 8,453,000f 2,675,000 2,100,000 575,000
6. 9,672,000g 7,347,000h 2,325,000 2,100,000 225,000
7. 11,544,000i 8,769,000j 2,775,000 2,331,000k 444,000
8. 10,400,000 7,584,000l 2,816,000 2,184,000m 632,000

Gstands for given.

a2,500,000  1.11; b2,500,000  0.89; c2,100,000  1.04; d2,100,000  0.96; e10,400,000  1.07; f7,900,000  1.07; g10,400,000  0.93; h7,900,000  0.93; i10,400,000  1.11; j7,900,000  1.11; k2,100,000  1.11; l7,900,000  0.96; m2,100,000  1.04

9. Alternative 1, a 11 increase in contribution margin holding revenues constant, yields the highest budgeted operating income because it has the highest increase in contribution margin without increasing fixed costs.