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# Labor Cost - Hourly Plan & Piece Rate Plan

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Management of the Von Machine Company requests that you calculate the effect of two different wage payment plans upon employee earnings and also on the unit labor cost of Product A.

The following information is available:
-1 The hourly rate is \$9.00.
-2 The labor rate per piece of Part X, if the employee is paid on a piece-rate basis, is \$.30.
Ten pieces of Part X are required for one unit of Product A. The plant works a 6-day week and an 8-hour day, totaling 48 hours per week. No overtime premium pay is to be considered in your analysis.
During a selected week, the following pieces of Part X were produced:

Day Part X
Quantities Produced
1 150
2 200
3 240
4 180
5 300
6 200

An agreement with the union requires a minimum rate of \$6.50 per clock hour be paid to employees.

a. Calculate the labor cost each day of the week for an employee under:
-1 the hourly-rate plan.
-2 the piece-rate plan.
b. If the company could anticipate a steady production level of 250 units of Part X each day, which plan would you recommend to the company's management? Why?

#### Solution Summary

The solution calculates labor cost based on hourly plan rate & piece rate plan.

\$2.19

## ACCOUNTING(BUDGET)

The first budget to be prepared when making a master budget is the: (Points: 5)
direct labor budget
cash budget
production budget
sales budget

2. The statement that best describes the ABB process is: (Points: 5)
Budgeting focuses on inputs in order to be sure to have the proper resources on hand.
Budgeting focuses on outputs expected in order to evaluate how many resources are needed to perform the activities necessary to produce them
Budgeting deals strictly in financial terms so that there is a match to the traditional financial statements.
Budgeting focuses on cost centers since budgets are all about controlling costs.

3. The proper order of the steps listed below that management should take to reach strategic goals is:
A. Define strategy necessary to meet the overall objectives
B. Prepare and implement the budget
C. Define mission statement
D. Gather data and prepare forecasts for the coming period
E. Develop the overall objectives of the organization
F. Compare actual performance to budgeted performance
(Points: 5)
C,E, A, D, B, F
C,A, B, D, E, F
C, A, E, B, D,F
A, C, D, E, B, F

4. The percentage of sales method of determining how much should be spent on advertising can best be described as: (Points: 5)
The budgeted advertising amount will be based upon a percentage of budgeted or prior years' net profit.
The budgeted advertising amount will be based upon a percentage of budgeted or prior years' revenue.
The budgeted advertising amount will be based upon a percentage of budgeted or prior years' gross profit
All of the above

1. Using ABB principles, justify the workforce needed for the cake decorating department within the local grocery store. The following data is available regarding the time necessary to bake and assemble small, large and wedding cakes as well as the time necessary to decorate each of these products.
The baking and assembling of the cakes is broken down into "units". It takes an employee 1 hour to bake and assemble 4 units.
A Small Cake represents 1 unit
A Large Cake represents 2 units
A Wedding Cake represents 4 units
The following chart summarizes the time necessary to decorate one cake:
Small cake 15 minutes
Large cake 30 minutes
Wedding cake 2 hours
The following is the expected sales budget in units for the next month:
Small cakes budgeted to be made 100
Large cakes budgeted to be made 30
Wedding cakes budgeted to be made 10
In addition, 1 employee will need 1 hour of worktime in order to setup for the day, and 1 employee will need 1 1/2 hours per day to clean up. Assume a 20 day month with 40 hour work weeks. How many employees will be needed for the required workload? Please provide information as to how you arrived at your response.

(Points: 25)
Cabinets, Inc builds standard 24" and 36" wide cabinets with standard 5 piece doors as well as non-standard cabinets sized between 9" and 40" wide and custom doors with up to 14 pieces.
The company prices cabinets by width and doors by the square inch. Last month, net income was down when orders were up; however, a high percentage of the orders were for non-standard sizes with doors of 6-14 pieces as opposed to the standard sizes with standard 5 piece doors.
Focusing on feature costing, describe why net income is down.
(Points: 15)

2. As a manager, how might you use knowledge about common characteristics and assumptions inherent in forecasting in order to improve preparation of budgets or the use of budgets within your organization? Please provide a specific example for each common characteristic or assumption that you mention. (Points: 15)

3. Provide a brief discussion of how you might use ONE of the four common qualitative forecasting methods in your organization. (Points: 15)

4. What are the two primary objectives of the planning and control of direct labor? How can ABB help a manager achieve these goals. Please provide a specific example. (Points: 15)

5. There are three popular methods for determining advertising dollars for a budget. Please provide an example of how ONE of these three methods could be used for a company that manufactures shoes. (Points: 15)
1. Fallgatter, Inc. expects to sell 15,000 units. Each unit requires:
3 pounds of direct material at \$12 per pound
2 direct labor hours at \$10 per direct labor hour.
The manufacturing overhead rate is \$8 per direct labor hour.
The beginning inventories are as follows:
Direct materials 2,000 pounds
Finished goods 2,500 units
The planned ending inventories are as follows:
Direct materials 5,000 pounds
Finished goods 3,000 units
Required
1. What is the planned production?
2. What are the required direct material purchases for the planned production ?
(Points: 20)

2. Harden Enterprises produces computer equipment and programs for heavy equipment manufacturers. One of the most important parts of the company's new just-in-time production process is quality control. Initially, a traditional cost accounting system was used to assign quality control costs to products. All of the costs of the Quality Control Department were included in the plant's overhead cost rate and allocated to products based on direct labor dollars. Recently, the firm implemented an activity-based costing system. The activities, cost drivers, and rates for the quality control function are summarized below, along with cost allocation information from the traditional system. Also shown is information related to one order of the Ace computer line.
Quality control costs were assigned at a rate of 9% of direct labor dollars.
Order Ace 18:
Charged with \$15,500 of direct labor costs.
Activity Based Approach for the quality control function:
Activities Cost Drivers Cost
Assignment
Rates Order Ace 18
Activity Usage
Incoming
Materials Inspection Type of
material used \$15.75 per
type of
material 10 types of material
In-process
inspection Number of
products \$0.95 per
product 600 products
Tool and gauge
Control Number of
processes
per cell \$7 per
process 21 processes
Product
Certification Per order \$65 per order 1 order
Required:
1. Compute the quality control cost that would be assigned to the Ace order under both the traditional approach and the activity-based costing approach to cost assignment.
2. What was the impact on the costs assigned to the Ace order as a result of shifting to the activity-based costing approach?
1. The N & H Company has the following historical sales data:
Year Sales
2001 \$100,000
2002 \$150,000
2003 \$135,000
2004 \$140,000
2005 \$160,000

Required:
1. (10 pts) Using the Moving Average Method, predict the sales for 2006
2. (10 pts) Using Exponential Smoothing, predict the sales for 2006. Assume that 2005 is more representative of sales than 2004, that 2004 is more representative than 2003, that 2003 is more representative than 2002, and that 2002 is more representative than 2001.
(Points: 20)

2. The Freeman Company produces two products, suns and moons. The following information is available:
Suns Moons
Unit Selling Price \$90 \$60
Unit Variable Costs 72 30
Unit Contribution Margin 18 30
Sales Mix 60% 40%

Additional information: Total company-wide fixed costs are \$456,000
Given the stated sales mix, how many suns will need to be sold in order to obtain a profit of \$228,000?
(Points: 20)

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