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In Mussatto Company, direct labor is $20 per hour.

The company expects to operate at 10,000 direct labor hours


each month. In January 2010, direct labor totaling $203,000 is incurred in working 10,400 hours. Complete the (a)
static budget report and (b) flexible budget report.

MUSSATTO COMPANY

Static Direct Labor Budget Report

For the Month Ended January 31, 2010

Budget Actual Difference

Direct Labor
$ 200000 $ 203000 $ 3000 U

MUSSATTO COMPANY

Flexible Direct Labor Budget Report

For the Month Ended January 31, 2010

Budget Actual Difference

Direct Labor F
$ 208000 $ 203000 $ 5000

Wasson, Inc. reports the following financial information.

Average operating assets $3,000,000

Controllable margin $600,000

Minimum rate of return 9%

Compute the return on investment and the residual income.

Return on investment
20 %

Residual income $ 330000

Pletcher Company's manufacturing overhead budget for the first quarter of 2010 contained the following
data.

Variable Costs Fixed Costs

Indirect materials $12,000 Supervisory salaries $36,000


Indirect labor 10,000 Depreciation 7,000
Property taxes and
Utilities 8,000 8,000
insurance
Maintenance 6,000 Maintenance 5,000
Actual variable costs were: indirect materials $13,800, indirect labor $9,600, utilities $8,700, and
maintenance $4,900. Actual fixed costs equaled budgeted costs except for property taxes and insurance,
which were $8,200. The actual activity level equaled the budgeted level.

All costs are considered controllable by the production department manager except for depreciation, and
property taxes and insurance.

Correct.

Complete the flexible manufacturing overhead budget report for the first quarter. (If answer is zero,
please enter 0, do not leave any fields blank.)

PLETCHER COMPANY

Manufacturing Overhead Flexible Budget Report

For the Quarter Ended March 31, 2010

Difference
Favorable F
Budget Actual Unfavorable U

Variable costs
$ 12,000 $ 13,800 $ 1,800

Indirect materials U
10000 9,600 400

Indirect labor F
8000 8,700 700

Utilities U
6000 4900 1100

Maintenance F
36000 37000 1000

Total variable
costs U
Fixed costs
36000 36000 0
Supervisory
salaries
7000 7000 0

Depreciation
8000 8,200 200
Prop. taxes &
ins. U
5000 5000 0

Maintenance
56000 56200 200

Total fixed
costs U
$ 92000 $ 93200 $ 1200

Total costs U

Correct.
Complete the responsibility report for the first quarter. (If answer is zero, please enter 0, do not leave any
fields blank.)

PLETCHER COMPANY

Manufacturing Overhead Responsibility Report

For the Quarter Ended March 31, 2010

Difference
Favorable F
Controllable Costs Budget Actual Unfavorable U

$ 12000 $ 13800 $ 1800

Indirect materials U
10000 9600 400

Indirect labor F
8000 8700 700

Utilities U
11000 9900 1100

Maintenance F
36000 36000 0

Supervisory salaries
$ 77000 $ 78000 $ 1000

Total costs U

Presented below is selected financial information for two divisions of Capital Brewery. You are to supply the
missing information. (Round your answers to 0 decimal places, i.e. 250,000, except round rate of return and
return on investment to 2 decimal places, i.e. 15.25.)

Lager Lite Lager

Contribution margin $500,100 $300,700


Controllable margin 199,800
340672

Average operating assets $999,800


$ 740000

Minimum rate of return 14%


14.84 %

Return on investment 27%


34.07 %

Residual income $90,000 $200,700

Nieto Company uses a responsibility reporting system. It has divisions in Denver, Seattle, and San Diego.
Each division has three production departments: Cutting, Shaping, and Finishing. The responsibility for each
department rests with a manager who reports to the division production manager. Each division manager
reports to the vice president of production. There are also vice presidents for marketing and finance. All vice
presidents report to the president.
In January 2010, controllable actual and budget manufacturing overhead cost data for the departments
and divisions were as shown below.

Manufacturing Overhead Actual Budget

Individual costs-Cutting Department-Seattle


$
$
Indirect labor 70,00
73,000
0
46,00
Indirect materials 47,700
0
18,00
Maintenance 20,500
0
17,00
Utilities 20,100
0
20,00
22,000
Supervision 0

$183,3 $171,
00 000

Total costs
$158,0 $148,
Shaping Department-Seattle
00 000
210,00 206,0
Finishing Department-Seattle
0 00
676,00 673,0
Denver division
0 00
722,00 715,0
San Diego division
0 00
Additional overhead costs were incurred as follows: Seattle division production manager-actual costs
$52,500, budget $51,000; vice president of production-actual costs $65,000, budget $64,000; president-
actual costs $76,400, budget $74,200. These expenses are not allocated.
The vice presidents who report to the president, other than the vice president of production, had the
following expenses.

Vice President Actual Budget

$130,00
Marketing $133,600
0

Finance 109,000 105,000

Correct.

Complete the following responsibility reports.

1. Manufacturing overhead-Cutting Department manager-Seattle division.

2. Manufacturing overhead-Seattle division manager.

3. Manufacturing overhead-vice president of production.

4. Manufacturing overhead and expenses-president.

No. 1

To Cutting Department Manager - Seattle


Division Month: January

Controllable Budget Actual Fav/Unfav


Costs:
$ 70000 $ 73000 $ 3000

Indirect labor U
46000 47700 1700

Indirect materials U
18000 20500 2500

Maintenance U
17000 20100 3100

Utilities U
20000 22000 2000

Supervision U
$ 171000 $ 183300 $ 12300

Total U

No. 2

To Division Production Manager - Seattle Month: January

Controllable Budget Actual Fav/Unfav


Costs:
$ 51000 $ 52500 $ 1500

Seattle Division U
Departments:
171000 183300 12300

Cutting U
148000 158000 10000

Shaping U
206000 210000 4000

Finishing U
$ 576000 $ 603800 $ 27800

Total U

No. 3
To Vice President - Production Month: January

Controllable Budget Actual Fav/Unfav


Costs:
$ 64000 $ 65000 $ 1000

V-P Production U
Divisions:
576000 603800 27800

Seattle U
673000 676000 3000

Denver U
715000 722000 7000

San Diego U
$ 2028000 $ 2066800 $ 38800

Total U

No. 4

To President Month: January

Controllable Budget Actual Fav/Unfav


Costs:
$ 74200 $ 76400 $ 2200

President U
Vice-Presidents:
2028000 2066800 38800

Production U
130000 133600 3600

Marketing U
105000 109000 4000

Finance U
$ 2337200 $ 2385800 $ 48600

Total U

Correct.

Rank the comparative performances of:

1. Department managers in the Seattle division.

1.
Finishing

2
Shaping

3.
Cutting

2. Division managers.

1.
Denver

2
San Diego
3.
Seattle

3. Vice presidents.

1.
Production

2
Marketing

3.
Finance

Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master
budget.

True

False

Budget reports provide the feedback needed by management to see whether actual operations are on course.
Tru
e

Fals
e

For June, Mark Manufacturing estimated sales revenue at $200,000. It pays sales commissions that are 4% of sales.
The sales manager's salary is $95,000, estimated shipping expenses total 1% of sales, and miscellaneous selling
expenses are $5,000. How much are budgeted selling expenses for the month of July if sales are expected to be
$180,000?
$14,000

$109,000

$110,000

$9,000

The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-
day decisions about activities in an area is called
static reporting.

master budgeting.

flexible accounting.

responsibility accounting.

The foreign subsidiary of a large corporation is


a cost center.
not a responsibility center.

a profit center.

an investment center.

Which of the following is not an indirect fixed cost?


Profit center supervisory salaries.

Company president's salary.

Company personnel department costs.

Depreciation on the company building housing several profit centers.

Safety Seats Company recorded operating data for its auto accessories division for the year.
Sales $375,000

Contribution margin 75,000

Total direct fixed costs 45,000

Average total operating assets 200,000

How much is ROI for the year if management is able to identify a way to improve the contribution margin by
$15,000, assuming fixed costs are held constant?
15.0%

12.0%

45.0%

22.5%

Lovell Company's organization chart includes the president; the vice


president of production; three assembly plants-Dallas, Atlanta, and
Tucson; and two departments within each plant-Machining and
Finishing. Budget and actual manufacturing cost data for July 2010 are
as follows:
Finishing Department-Dallas: Direct materials $41,500 actual,
$45,000 budget; direct labor $83,000 actual, $82,000 budget;
manufacturing overhead $51,000 actual, $49,200 budget.

Machining Department-Dallas: Total manufacturing costs


$220,000 actual, $216,000 budget.

Atlanta Plant: Total manufacturing costs $424,000 actual,


$421,000 budget.

Tucson Plant: Total manufacturing costs $494,000 actual,


$496,500 budget.
The Dallas plant manager's office costs were $95,000 actual and $92,000 budget. The vice president of
production's office costs were $132,000 actual and $130,000 budget. Office costs are not allocated to
departments and plants.
Complete the reports in a responsibility system for:
Correct.

The Finishing Department-Dallas.


To Dallas Department Manager - Finishing Month: July

Budget Actual Fav/Unfav

Direct materials $ 45000 $ 41500 $ 3500 F

Direct labor 82000 83000 1000 U

Manufact.
overhead U
49200 51000 1800

Total F
$ 176200 $ 175500 $ 700

Correct.

The plant manager-Dallas.


To Assembly Plant Manager - Dallas Month: July

Budget Actual Fav/Unfav

Dallas office $ 92000 $ 95000 $ 3000 U

Departments

Machining 216000 220000 4000 U

Finishing F
176200 175500 700
Total U
$ 484200 $ 490500 $ 6300

The vice president of production.


To Vice President - Production Month: July

Budget Actual Fav/Unfav


VP Production $130,000 $132,000 $2,000 U

Assembly plants:

Atlanta 421,000 424,000 3,000 U

Dallas 484,200 490,500 6,300 U

Tucson F
496,500 494,000 2,500
Total $1,531,700 $1,540,500 $8,800 U