Reference no: EM13837322
Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 2015:
Level of Activity
Driver: Direct Labor Hours
50,000
100,000
Direct materials
$ 300,000
$ 600,000
Direct labor
200,000
400,000
Depreciation (plant)
100,000
100,000
Subtotal
$ 600,000
$1,100,000
Driver: Machine Hours
200,000
300,000
Maintaining equipment
$ 360,000
$ 510,000
Machining
112,000
162,000
Subtotal
$ 472,000
$ 672,000
Driver: Material Moves
20,000
40,000
Moving materials
$ 165,000
$ 290,000
Driver: Number of Batches Inspected
100
200
Inspecting products
$ 125,000
$ 225,000
Total
$1,362,000
$2,287,000
During 2015, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The following actual costs were incurred:
Direct materials $440000
direct labor $355000
depreciation $100000
Maintaining equipment $425000
Machining 142000
Moving Materials 232500
inspecting products 160000
Marston applies overhead using rates based on direct labor hours, machine hours, number of moves, and number of batches. The second level of activity (the right column in the preceding table) is the practical level of activity (the available activity for resources acquired in advance of usage) and is used to compute predetermined overhead pool rates.
One of Marston's managers said the following: "Budgeting at the activity level makes a lot of sense. It really helps us manage costs better. But the previous budget really needs to provide more detailed information. For example, I know that the moving materials activity involves the use of forklifts and operators, and this information is lost when only the total cost of the activity for various levels of output is reported. We have four forklifts, each capable of providing 10,000 moves per year. We lease these forklifts for five years, at $10,000 per year. Furthermore, for our two shifts, we need up to eight operators if we run all four forklifts. Each operator is paid a salary of $30,000 per year. Also, I know that fuel costs about $0.25 per move."
QUESTION:
Assuming that these are the only three items, expand the detail of the flexible budget for moving materials to reveal the cost of these three resource items for 20,000 moves (Especially consider how activity-based budgeting may provide useful information for non-value-added activities.)
What is the cost per unit when there are 20000 moves?
What is the cost per unit when there are 40000 moves?
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