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Managerial Accounting: Electron Company

1.) Electron Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending inventory for the first quarter will be 35,800 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter 221,000 units; third quarter, 497,000 units; and fourth quarter, 243,500 units. Company policy calls for the ending inventory of a quarter to equal 40% of the next quarters budgeted sales. Prepare a production budget for both the second and third quarters that show the number of transmission to manufacture.

2.) Beck company set the following standard unit costs for its single product.
Direct materials (26lbs. @4 per lb.).....................................................$104.00
Direct labor (8hrs.@ $8 per hr.)............................................................. 64.00
Factory overhead?variable (8hrs. @ $5 per hr)...................................40.00
Factory overhead?fixed (8hrs. @ $7 per hr.)...................................... 56.00
Total standard cost.................................................................................. $264.00

The predetermined overhead rate is based on a planned operating volume of 70% of the productive capacity of 50,000 units per quarter. The following flexible budget information is available.

Operating levels
60% 70% 80%

Production in units................................ 30,000 35,000 40,000
Standard direct labor hours.................. 240,000 280,000 320,000
Budgeted overhead
Fixed factory overhead......$1,960,000 $1,960,000 $1,960,000
Variable factory overhead...$1,200,000 $1,400,000 $1,600,000

During the current quarter, the company operated at 80% of capacity and produced 40,000 units of product; actual direct labor totaled 178,000 hours. Units produced were assigned the following standard costs:

Direct materials (1,040,000 lbs. @ $4 per lb)....................................... $4,160,000
Direct labor (320,000 hrs @ $8 per hr)................................................. 2,560,000
Factory overhead (320,000 hrs @ $12 per hr)..................................... 3,840,000
Total standard cost......................................................... $10,560,000

Actual costs incurred during the current quarter follow

Direct materials (1,035,000 lbs @ $4.10)....................................... $4,243,500
Direct labor (327,000 hrs @ $7.75).............................................. 2,543,250
Fixed factory overhead costs......................................................... 1,875,000
Variable factory overhead costs............................................... 1,482,717
Total actual cost................................................................... $10,135,467

1. Compute the direct materials cost variance, including its price and quantity variances
2. Compute the direct labor variance, including its rate and efficiency variances.

3.) Major Companies 2009 master budget includes the following fixed budget report. It is based on an expected production and sales volume of 15,000 units

MAJOR COMPANY
Fixed Budget Report
For Year Ended December 31, 2009
Sales $3,300,000
Cost of good sold
Direct materials $960,000
Direct labor 240,000
Machinery repairs (variable cost)60,000
Depreciate?plant equipment 300,000
Utilities ($60,000 is variable) 180,000
Plant management salaries 210,000 1,950,000
Gross profit 1,350,000
Selling expenses
Packaging 75,000
Shipping 105,000
Sales salary (fixed annual amt) 235,000 415,000
General and administrative expenses
Advertising expense 100,000
Salaries 241,000
Entertainment expense 85,000 426,000
Income from operations $509,000

1. Classify all items listed in the fixed budget as variable or fixed. Also determine their amounts per unit or their amounts for the year, as appropriate.
2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units.
3. The company's business conditions are improving. One possible result is a sales volume of approximately 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2009 budgeted amount of 4509,000 if this level is reached without increasing capacity?
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2009 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level?

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