E8-11 Allied Company’s 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

000 increments in each of the remaining three quarters. Fixed overhead costs are estimated to be $35. 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. compute the minimum acceptable price for the transfer of the small motor to the Household Divisio n. Excess capacity will also help increase net income if the items are purchased internally.000 in the first quarter of 2005 with $2. BE9-6 For Savage Inc. . With excess capacity the company can offer a set minimum transfer price and would not lose out on the contribution margin.(b) Assuming that the Small Motor Division does not have excess capacity. The level of capacity has an effect on the minimum price to sell. Prepare the manufacturing overhead budget by quarters and in total for the year.000 in each quarter. variable manufacturing overhead costs are expected to be $20.

000.200.000 3 24.000 59.000 BE9-8 Stoker Company has completed all of its operating budgets.000x$24) 1. Stocker Company Budgeted Income Statement For the Year Ending December 31.000 .000 2 22. 2005. 2005 1 Total Variable Costs Total Fixed Costs Total Manufacturing Overhead 20. Prepare a budgeted income statement for the year ending December 31.000 35.000 4 Year 26.000 units and total sales of $2.000 35. 31.000.000 (50.000 35.000 61.000 92. 2005 Sales Cost of goods sold Gross profit $2. The total unit cost of making one unit of sales is $24.Savage Inc. Income taxes are estimated to be $150.000 800.000.000 232. The sales budget for the year shows 50. Manufacturing Overhead Budget For the Year Ending Dec.000 57.000 35.000 55. Selling and administrative expenses are expected to be $300.

Similarities include both are predetermined costs and both contribute to management planning and controlling.000 350.000 500. Standard cost may be incorporated into cost accounting systemes . (b) Contrast the accounting for standards and budgets.000 2.000 150.Selling & Admin expenses Income taxes from operations Interest expense Income before income taxes Income tax expense Net income 300. (a) Explain the similarities and differences between standards and budgets. Budget data us not journalized in cost accounting systems. A budget expresses a total amount and standard expresses a unit amount.000 0 500.

(Standard hours x Standard rate)= Total labor variamce 2. (2-3 ) (Actual hours x Standard hours) .250 hours . In the direct labor variance matrix. (2) Actual hours Standard rate. and (3) Standard hours Standard rate.(Actual hours x Standard rate) = Labor price variance 3. (1-3) (Actual hours x Actual rate) . indicate the formulas for each of the direct labor variances.11. 1.(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. (1-2) (Actual hours x Actual rate) . Using the numbers. there are three factors: (1) Actual hours Actual rate. Quanti ties Actual hours incurred & used Costs Actual labor rate $13 per hour 4.

000 .000 tmv (Actual quantity x Actual price) .(1.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.(1.200 162.250 x $128) .250 $4.(4.250 x $13) .250.500= x $130) 2500 $2.(4.300 $12) = (Actual hours x Actual Labor price variance (4.600= 3.000= $4.156.000= 4. and quantity variances for materials and labor (Actual quantity x Actual price) .000= mqv (Actual hours x Actual variance (4.250 tons 4.(Actual quantity x Standard price)= Materials price variance (1.000 unfavorable x $130) 4.250 $12) rate) .(Standard hours x Standard rate) = Total labor x 55.500 favorable mpv (Actual quantity x standard price) .200 160.500 $6.000 .200 tons a) Compute the total.250 x $13) .(Actual hours x Standard rate)= x 55.250 x $130) .250 .(Standard quantity x standard price)= Total materials variance (1.500 unfavorable x $130)= 156.162.650 $3650 unfavorable tlv rate) .51.250 160. price.(1.250 x $128) .300 hours 1.250 unfavorable lpv .(Standard quantity x Standard price) = Materials quantity variance (1.51.

51.(4.250 x $12) . 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 . and suggest where responsibility for the unfavorable result might be placed. Unfavorable tmv may be caused by internal factors production issues from new or unexperienced employees. Most likely caused by mistakes.600 $600 favorable $12) = 600 lqv (b) Provide two possible explanations for each of the unfavorable variances calculated above.300 x 51.000 .(Actual hours x standard rate) . Unfavorable variances are negative connotations that require further investigation.(Standard hours x standard rate) = Labor quantity variance (4.

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