E8-11 Allied Companys Small Motor Division manufactures a number of small motors used in household and office appliances.

The Household Division of Allied then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their components internally or externally. The following costs relate to small motor LN233 on a per unit basis. Fixed cost per unit Variable cost per unit Selling price per unit

$5 8 30

(a) Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Divisio n. Selling sole price $30 Variable sole price 8 Contribution margin per unit 22 Variable cost + opportunity cost= Minimum transfer price $8 + $22= $30 minimum transfer price

(b) Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Divisio n. Variable cost + zero opportunity cost= minimum transfer price $8 + 0 = $8 minimum transfer price

(c) Explain why the level of capacity in the Small Motor Division has an effect on the transfer price. The level of capacity has an effect on the minimum price to sell. With excess capacity the company can offer a set minimum transfer price and would not lose out on the contribution margin. Excess capacity will also help increase net income if the items are purchased internally.

BE9-6 For Savage Inc. variable manufacturing overhead costs are expected to be $20,000 in the first quarter of 2005 with $2,000 increments in each of the remaining three quarters. Fixed overhead costs are estimated to be $35,000 in each quarter. Prepare the manufacturing overhead budget by quarters and in total for the year.

Savage Inc. Manufacturing Overhead Budget For the Year Ending Dec. 31, 2005 1 Total Variable Costs Total Fixed Costs Total Manufacturing Overhead 20,000 35,000 55,000 2 22,000 35,000 57,000 3 24,000 35,000 59,000 4 Year 26,000 35,000 61,000 92,000 140,000 232,000

BE9-8 Stoker Company has completed all of its operating budgets. The sales budget for the year shows 50,000 units and total sales of $2,000,000. The total unit cost of making one unit of sales is $24. Selling and administrative expenses are expected to be $300,000. Income taxes are estimated to be $150,000. Prepare a budgeted income statement for the year ending December 31, 2005.

Stocker Company Budgeted Income Statement For the Year Ending December 31, 2005 Sales Cost of goods sold Gross profit $2,000,000 (50,000x$24) 1,200,000 800,000

Selling & Admin expenses Income taxes from operations Interest expense Income before income taxes Income tax expense Net income

300,000 500,000 0 500,000 150,000 350,000

2. (a) Explain the similarities and differences between standards and budgets. A budget expresses a total amount and standard expresses a unit amount. Similarities include both are predetermined costs and both contribute to management planning and controlling. (b) Contrast the accounting for standards and budgets. Budget data us not journalized in cost accounting systems. Standard cost may be incorporated into cost accounting systemes

11. In the direct labor variance matrix, there are three factors: (1) Actual hours Actual rate, (2) Actual hours Standard rate, and (3) Standard hours Standard rate. Using the numbers, indicate the formulas for each of the direct labor variances. 1. (1-3) (Actual hours x Actual rate) - (Standard hours x Standard rate)= Total labor variamce 2. (1-2) (Actual hours x Actual rate) - (Actual hours x Standard rate) = Labor price variance 3. (2-3 ) (Actual hours x Standard hours) - (Standard hours x Standard rate) = Labor quantity variance

E11-6 The following direct materials and direct labor data pertain to the operations of Batista Manufacturing Company for the month of August. Quanti ties Actual hours incurred & used

Costs Actual labor rate $13 per hour

4,250 hours

Actual materials price Standard labor rate Standard materials price

$128 per ton $12 per hour $130 per ton

Actual quant of material pur & used Standard hours used Standard quant of material used

1,250 tons 4,300 hours 1,200 tons

a) Compute the total, price, and quantity variances for materials and labor (Actual quantity x Actual price) - (Standard quantity x standard price)= Total materials variance (1,250 x $128) - (1,200 160,000 - 156,000= $4,000 unfavorable x $130) 4,000 tmv (Actual quantity x Actual price) - (Actual quantity x Standard price)= Materials price variance (1,250 x $128) - (1,250 160,000 - 162,500= x $130) 2500 $2,500 favorable mpv (Actual quantity x standard price) - (Standard quantity x Standard price) = Materials quantity variance (1,250 x $130) - (1,200 162,500 $6,500 unfavorable x $130)= 156,000= mqv

(Actual hours x Actual variance (4,250 x $13) - (4,300 $12) = (Actual hours x Actual Labor price variance (4,250 x $13) - (4,250 $12)

rate) - (Standard hours x Standard rate) = Total labor x 55,250- 51,600= 3,650 $3650 unfavorable tlv rate) - (Actual hours x Standard rate)= x 55,250 - 51,000= 4,250 $4,250 unfavorable lpv

(Actual hours x standard rate) - (Standard hours x standard rate) = Labor quantity variance (4,250 x $12) - (4,300 x 51,000 - 51,600 $600 favorable $12) = 600 lqv (b) Provide two possible explanations for each of the unfavorable variances calculated above, and suggest where responsibility for the unfavorable result might be placed. Unfavorable variances are negative connotations that require further investigation. Most likely caused by mistakes. Unfavorable tmv may be caused by internal factors production issues from new or unexperienced employees. Unfavorable mqv may be caused by lower worker efficiency than anticipated or poor working conditions due to unexpected causes Unfavorable tlv may occur because the labor hourly rate is higher Unfavorable lpv causes may be from low production from workers