Finance question – budgeting and variances
PROBLEM 9-43
FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit,
and vegetables. The canned food box (type C) and the perishable food box (type P) have the following
material and labor requirements.
Type of Box
C P
Direct material required per 100 boxes:
Paperboard ($.20 per pound) …………………………………………………………………………….. 30 pounds 70 pounds
Corrugating medium ($.10 per pound) ………………………………………………………………… 20 pounds 30 pounds
Direct labor required per 100 boxes ($12.00 per hour) ……………………………………………….. .25 hour .50 hour
The following manufacturing-overhead costs are anticipated for the next year. The predetermined
overhead rate is based on a production volume of 495,000 units for each type of box. Manufacturing
overhead is applied on the basis of direct-labor hours.
Indirect material ……………………………………………………………………………………………………………………… $ 10,500
Indirect labor …………………………………………………………………………………………………………………………….. 50,000
Utilities …………………………………………………………………………………………………………………………………….. 25,000
Property taxes …………………………………………………………………………………………………………………………… 18,000
Insurance ………………………………………………………………………………………………………………………………….. 16,000
Depreciation ……………………………………………………………………………………………………………………………… 29,000
Total …………………………………………………………………………………………………………………………………….. $148,500
The following selling and administrative expenses are anticipated for the next year.
Salaries and fringe benefits of sales personnel ……………………………………………………………………………….. $ 75,000
Advertising ………………………………………………………………………………………………………………………………. 15,000
Management salaries and fringe benefits …………………………………………………………………………………………. 90,000
Clerical wages and fringe benefits ………………………………………………………………………………………………….. 26,000
Miscellaneous administrative expenses ……………………………………………………………………………………………… 4,000
Total …………………………………………………………………………………………………………………………………….. $210,000
The sales forecast for the next year is as follows:
Sales Volume Sales Price
Box type C …………………………………………………………………………….. 500,000 boxes $ 90.00 per hundred boxes
Box type P …………………………………………………………………………….. 500,000 boxes 130.00 per hundred boxes
The following inventory information is available for the next year. The unit production costs for
each product are expected to be the same this year and next year.
Expected Inventory
January 1
Desired Ending Inventory
December 31
Finished goods:
Box type C …………………………………………………………………….. 10,000 boxes 5,000 boxes
Box type P ……………………………………………………………………… 20,000 boxes 15,000 boxes
Raw material:
Paperboard …………………………………………………………………… 15,000 pounds 5,000 pounds
Corrugating medium ……………………………………………………….. 5,000 pounds 10,000 pounds
Required: Prepare a master budget for FreshPak Corporation for the next year. Assume an income tax rate of 40 percent. Include the following schedules.
1. Sales budget.
2. Production budget.
3. Direct-material budget.
4. Direct-labor budget.
5. Manufacturing-overhead budget.
6. Selling and administrative expense budget.
7. Budgeted income statement. ( Hint: To determine cost of goods sold, first compute the manufacturing cost per unit for each type of box. Include applied manufacturing overhead in the cost.)
EXERCISE 11-26
The following data are the actual results for Marvelous Marshmallow Company for October.
Actual output ………………………………………………………………………………………………………………… 9,000 cases
Actual variable overhead …………………………………………………………………………………………………. $405,000
Actual fixed overhead ……………………………………………………………………………………………………… $122,000
Actual machine time ………………………………………………………………………………………………… 40,500 machine hours
Standard cost and budget information for Marvelous Marshmallow Company follows:
Standard variable-overhead rate ………………………………………………………………………… $9.00 per machine hour
Standard quantity of machine hours ……………………………………………………………. 4 hours per case of marshmallows
Budgeted fixed overhead ………………………………………………………………………………….. $120,000 per month
Budgeted output …………………………………………………………………………………………….. 10,000 cases per month
Required:
1. Use any of the methods explained in the chapter to compute the following variances. Indicate whether each variance is favorable or unfavorable, where appropriate.
a. Variable-overhead spending variance.
b. Variable-overhead efficiency variance.
2. Build a spreadsheet: Construct an Excel spreadsheet to solve the preceding requirement. Show how the solution will change if the following information changes: actual output was 9,100 cases, and actual variable overhead was $395,000.
