Reference no: EM131772587

Question 1

Eco green Company manufactures cloth shopping bags that it plans to sell for $5 each. Budgeted production and sales for these bags for 2011 is 800,000 bags, with a standard of 400,000 machine hours for the whole year. Budgeted fixed overhead costs are $470,000 and variable overhead cost is $1.60 per machine hour. Because of increased demand, actual production and sales of the bags for 2010 are 900,000 bags using 440,000 actual machine hours. Actual variable overhead costs are $699,600 and actual fixed overhead is $501,900. Actual selling price is $6 per bag. Direct materials and direct labor actual costs were the same as standard costs, which were $1.20 per unit and $1.80 per unit respectively.

Required:

Calculate the variable overhead and fixed overhead variances (spending, efficiency, spending and volume)

Create a chart showing the Flexible Budget Variances and Sales Volume Variances for revenue, costs, contribution margin and operating income.

Calculate the operating income based on budgeted profit per shopping bag.

Reconcile the budgeted operating income from requirement 3 to the actual operating income from your chart in requirement 2.

Calculate the operating income volume variance and show how the sales volume variance is comprised of the production volume variance and the operating income volume variance.

Question 2

Nakheel Sports Inc manufactures shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities. However, both manufacturing facilities share the same support services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support department.

Total Costs by Department (in thousands)
Information Technology (IT)	$2000
Human Resource (HR)	$1000
Clothing	$10000
Shoes	$8000
Total Costs	$24000

The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based on the following:

Information Technology : Number of IT labor hours worked by department.

Human Resources : Number of employees supported by department

Data on the bases, by department, are given as follows:

Department	IT Hours Used	Number of Employees
Clothing	5,000	120
Shoes	3000	40
Information Technology	-	40
Human Resources	2000	-

Required:

Compute the total costs of the production departments, after the support department costs of information technology and human resources have been allocated using the step-down method?

What other methods can be used to allocate support department costs? Explain the differences in the available methods

Assume that all the work on the IT department could be outsourced to an independent company for $97.50 per hour. If Nakheel Sports no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Nakheel Sports outsource its IT services?

Question 3

The Rows Company processes unprocessed goat milk up to the split-off point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October:

Direct Materials processed:      130,000 gallons (shrinkage was 10%)

 

      Production:                             condensed goat milk     52,200 gallons

                                                    skim goat milk             64,800 gallons

 

      Sales:                                     condensed goat milk     $3.50 per gallon

                                                    skim goat milk             $2.50 per gallon

The costs of purchasing the 130,000 gallons of unprocessed goat milk and processing it up to the splitoff point to yield a total of 117,000 gallons of salable product was $144,480. There were no inventory balances of either product.

Condensed goat milk may be processed further to yield 39,000 gallons (the remainder is shrinkage) of a medicinal milk product, Xyla, for an additional processing cost of $3 per usable gallon. Xyla can be sold for $18 per gallon.

Skim goat milk can be processed further to yield 56,200 gallons of skim goat ice cream, for an additional processing cost per usable gallon of $2.50. The product can be sold for $9 per gallon. There are no beginning and ending inventory balances.

Required:

Compute Rows Company income for Xyla and Skim Goat Ice Cream when joint costs are allocated using:

Net Realizable Value Method

Sales Value at Split-off point