mgmt-027 group project - kids in prison program … · salvage value of buildings and equipment...
TRANSCRIPT
PROJECT #2
MGMT-027
FALL 2016http://kidsinprisonprogram.wordpress.com/
REST IN PEACE CLIPPY.
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CASE 1:
Assumptions:
a. $0.16 per mile for gasoline.
b. $0.05 per mile for oil, minor repairs, and parts.
c. $480 per automobile per year for outside repairs.
d. $900 per automobile per year for insurance.
e. $8,610 per month for salaries and benefits.
f. $2,400 per automobile per year for depreciation.
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Required:
1. Prepare a new performance report for March based on a flexible budget that shows
spending variances.
Flexible Budget Performance Report
Planning
Budget
Activity
Variances
Flexible
Budget
Spending
Variances
Actual
Results
Miles 50000 58000 58000
Autos 20 21 21
GASOLINE 8000 1280 U 9280 310 F 8970
OIL, MINOR
REPAIRS, PARTS 2500 400 U 2900 60 F 2840
Outside repairs 800 40 U 840 140 U 980
Insurance 1500 75 U 1575 50 U 1625
Salaries and
benefits 8610 0 8610 0 8610
Vehicle
depreciation 4000 200 U 4200 0 4200
Total 25410 1995 U 27405 180 F 27225
2. What are the deficiencies in the original cost control report? How does the report that
you prepared in part (1) above overcome these deficiencies?
The original cost report shows deficiencies in the activity variances and therefore the
spending variances later are inaccurate. Our flexible budget overcomes the original
deficiencies in the original cost control report by adjusting the calculations for the costs by
replacing the planned level of activity with the actual level of activity and thus later
reflecting the actual costs incurred.
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CASE #2:
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Required:
1. How many units were produced during the period?
Actual Quantity = Total Standard Cost / Standard Cost Per Unit
Actual Quantity = $608,000/$32= 19,000 units
2. How many meters of direct materials were purchased and used in production?
Direct Materials Quantity Variance = Standard Price (Standard Quantity - Actual Quantity)
Actual Quantity = Direct Materials Quantity Variance / Standard Price + Standard Quantity
Actual Quantity = 32,000/16 + 608,000/16 = 40,000 meters
3. What was the actual cost per meter of material?
Direct Materials Price Variance = Actual Quantity (Standard Price - Actual Price)
Actual cost per meter = - Direct materials price variance / Actual quantity + Standard Price
Actual cost per meter = $640,000-$11,600=$628,400
Actual cost per meter = $628,400/$40,000=$15.71 per meter
4. How many actual direct labor-hours were worked during the period?
Efficiency variance = Standard direct labor rate (Standard direct labor hours - Actual direct
labor hours)
Actual direct labor hours = - Efficiency variance/Standard direct labor rate + Standard
direct labor hours
$285,000+$15,000=$300,000
$300,000/$15=$20,000
20,000 Direct labor hours
5. What was the actual rate per direct labor-hour?
Labor price variance = Actual labor hours ( Standard Labor rate - Actual labor rate)
$300,000+$4,000=$304,000
$304,000/20,000=$15.2
6. How much actual variable manufacturing overhead cost was incurred during the period?
Variable manufacturing overhead variance = Standard rate - Actual rate
AQ*SP = 20,000*$9=$180,000
$180,000-$4,000=$176,000
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CASE #3:
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Required:
1. Without regard to costs, identify the advantages to Mobile Seating Corporation of
continuing to obtain covers from its own Greenville Cover Plant.
One benefit of continuing to obtain covers from its own Greenville Cover Plant would be to
avoid the obligatory $800,000 cost to assist employees who lost their jobs in recovering
and/or securing new jobs. Mobile Seating Corporation may also avoid costs related to the
$700,000 figure associated with employee pension plans if they choose to retire after the
plant closes. The corporation would also be able to continue reaping the financial rewards
of providing the seat covers instead of settling for the $2 million salvage value of the
equipment in the plant, assuming the profit gained by operating is more than the money
gained by salvaging equipment due to closing the plant.
2. Mobile Seating Corporation plans to prepare a financial analysis that will be used in
deciding whether or not to close the Greenville Cover Plant. Management has asked you to
identify:
a The annual budgeted costs that are relevant to the decision regarding closing the plant
(show the dollar amounts).
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Relevant Costs
Materials: $8,000,000
Direct Labor: $670,000
Supervision $400,000
Indirect Plant $1,900,000 9,000,000
Differential pensions expense ($1,600,000 - $700,000)
$900,000
Total annual relevant costs $17,900,000
b The annual budgeted costs that are not relevant to the decision regarding closing the
plant and explain why they are not relevant (again show the dollar amounts).
Depreciation---Equipment cost: $1,300,000
Depreciation---Building cost: $2,100,000
Continuing pension cost: $700,000
Plant manager and staff: $600,000
Corporate expenses: $1,700,000
Total annual continuing costs: $6,400,000
Depreciation costs are irrelevant because even if the plant closes or remains in operation
the equipment and the building are naturally getting older (sunk costs). Annual pension
continues whether the plant continues to operate or not. Plant manager and staff are not
relevant because they would continue to work with other plants that are remaining. The
corporate expenses are fixed costs outside of the plant that remain regardless of whether
the plant is closed or not.
c Any non recurring costs that would arise due to the closing of the plant and explain how
they would affect the decision (again show any dollar amounts).
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Orders termination charges on canceled material orders of $8,000,000 * 25% = $2,000,000
Employment assistance = $800,000
Total nonrecurring costs = $2,000,000 + $800,000 = $2,800,000
The two costs that were non-recurring that arose from closing the plant included
termination charges on canceled material orders and employment assistance. If they closed
the plant, then they would have to incur a total cost of $2,800,000, but there are also
benefits to this decision, as they are now able to salvage their equipment and buildings for
$2,000,000.
3. Looking at the data you have prepared in (2) above, should the plant be closed? Show
computations and explain your answer.
First Year Other Years
Cost of purchasing the covers outside
-$21,000,000 -$21,000,000
Annual costs avoided by closing the plant
$17,900,000 $17,900,000
Cost of closing the plant -$2,800,000
Salvage value of buildings and equipment
2,000,000
Net advantage (disadvantage) of closing the plant
-$3,900,000 -$3,100,000
No, the plant should not be closed. The corporation would incur a loss of $3,900,000 for the
first year, and $3,100,000 over many years to come. The money that they gain from salvage
does not fully cover the amount of money they lose from closing the plant.
4. Identify any revenues or costs not specifically mentioned in the problem that Mobile
Seating Corporation should consider before making a decision.
There are multiple revenues and costs that should be considered that may include: supplier
prices in the future, employees that may be affected by closing a plant, tax implications, and
other costs of closing the plant, and lost production and revenue.
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