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Calculating a manuf. budget and statement of free cash flow

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Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead cost per direct labor hour are as follows.

Indirect labor $1.00
Indirect materials $0.60
Utlilities $0.40

Fixed overhead cost per month are supervision $4,000, depreciation $1,200, and property taxes $800. The company believes it will normally operate in a range of 7,000-10,000 direct labor hours per month.

Pepare a monthly manufacturing overhead flexible budget for 2014 for the expected range of activity, using increments of 1,000 direct labor hours.

Each of the items below must be considered in preparing a statement of cash flows for Alpha-Omega Co. for the year ended December 31, 2014. For each item, state how it should be shown in the statement of cash flows for 2014.
a. Issued bonds for $150,000 cash.
b. Purchased equipment for $200,000 cash.
c. Sold land costing $50,000 for $50,000 cash.
d. Declared and paid a $20,000 cash dividend.

The management of Russel Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $875,000. It had cash provided by operating activities of $643,000, paid cash dividends of $80,000 and had capital expenditures of $280,000. Compute the company's free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?

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Thome
Items included in manufacturing overhead are "Fixed Costs" and "Variable Costs" which are added together to get the total Manufacturing Overhead. Fixed Costs are items which have to be paid by the company each month regardless of # of units produced. Some examples of Fixed Costs are Mortgage Payments, Lease Payments and Insurance. Variable Costs are items that only have to be paid when an item is produced. Examples of Variable Costs include the materials used to produce an item, the labor used to produce an item and the ...

Solution Summary

Calculating a manufacturing budget and statement of free cash flow. Complete with MS Word and Excel files including charts and formulas.

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See Also This Related BrainMass Solution

Managerial Accounting

MANAGERIAL ANALYSIS
BYP8-2 Mo Vaugh and Associates is a medium-sized company located near a large
metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size. One such non-custom model is called Luxury Base Frame. Standard production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 900 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used. Standard and actual overhead costs were as follows.

Standard (1,000 units) Actual (900 units)
Indirect materials $12,000 $12,300
Indirect labor 43,000 51,000
(Fixed) Manufacturing 22,000 22,000
supervisors salaries
(Fixed) Manufacturing office 13,000 11,500
employees salaries
(Fixed) Engineering costs 27,000 25,000
Computer costs 10,000 10,000
Electricity 2,500 2,500
(Fixed) Manufacturing building 8,000 8,000
depreciation
(Fixed) Machinery depreciation 3,000 3,000
(Fixed) Trucks and forklift 1,500 1,500
depreciation
Small tools 700 1,400
(Fixed) Insurance 500 500
(Fixed) Property taxes 300 300
Total $143,500 $149,000

Instructions
a. Determine the overhead application rate.
b. Determine how much overhead was applied to production.
c. Calculate the controllable overhead variance and the overhead volume
variance.
d. Decide which overhead variances should be investigated.
e. Discuss causes of the overhead variances. What can management do to
improve its performance next month?

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