BUSINESS

E10-3 Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

Indirect labor $1.00
Indirect materials 0.70
Utilities 0.40

 

Fixed overhead costs per month are supervision $4,000, depreciation $1,200, and property taxes $800. The company believes it will normally operate in a range of 7,000–10,000 direct labor hours per month.

 

Instructions

Prepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,000 direct labor hours. Prepare flexible budget reports for manufacturing overhead costs, and comment on findings.

 

 

E10-5 Fallon Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $170,000 to $200,000. Variable costs and their percentage relationship to sales are sales commissions 6%, advertising 4%, traveling 3%, and delivery 2%. Fixed selling expenses will consist of sales salaries $35,000, depreciation on delivery equipment $7,000, and insurance on delivery equipment $1,000.

 

 

Instructions

Prepare a monthly flexible budget for each $10,000 increment of sales within the relevant range for the year ending December 31, 2017.

 

E10-17 The South Division of Wiig Company reported the following data for the current year.

Sales $3,000,000
Variable costs 1,950,000
Controllable fixed costs 600,000
Average operating assets 5,000,000

 

Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.

 

1. Increase sales by $300,000 with no change in the contribution margin percentage.

2. Reduce variable costs by $150,000.

3. Reduce average operating assets by 4%.

 

Instructions

1. Compute the return on investment (ROI) for the current year.

2.  Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)

 

P10-5A Optimus Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2017, and relevant budget data are as follows.

  Actual Comparison with Budget
Sales $1,400,000 $100,000 favorable
Variable cost of goods sold 665,000 45,000 unfavorable
Variable selling and administrative expenses 125,000 25,000 unfavorable
Controllable fixed cost of goods sold 170,000 On target
Controllable fixed selling and administrative expenses 80,000 On target

 

Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.

 

Instructions

1. Prepare a responsibility report (in thousands of dollars) for the Home Division.

(a) Controllable margin:

Budget $330;

Actual $360

2. Evaluate the manager’s performance. Which items will likely be investigated by top management?

3. Compute the expected ROI in 2017 for the Home Division, assuming the following independent changes to actual data.

 

1. Variable cost of goods sold is decreased by 5%.

2. Average operating assets are decreased by 10%.

3. Sales are increased by $200,000, and this increase is expected to increase contribution margin by $80,000.

 

Prepare reports for cost centers under responsibility accounting, and comment on performance of managers.

 

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