Question

Cost Items and Account Balances

Administrative salaries                                          $15,500

Advertising for Headgears                                      11,000

Cash, December 1                                                       –0–

Depreciation on factory building                           1,500

Depreciation on office equipment                            800

Insurance on factory building                                 1,500

Miscellaneous expenses—factory                         1,000

Office supplies expense                                                300

Professional fees                                                            500

Property taxes on factory building                           400

Raw materials used                                                  70,000

Rent on production equipment                              6,000

Research and development                                   10,000

Sales commissions                                                    40,000

Utility costs—factory                                                    900

Wages—factory                                                         70,000

Work in process, December 1                                 –0–

Work in process, December 31                               –0–

Raw materials inventory, December 1                 –0–

Raw materials inventory, December 31              –0–

Raw material purchases                                          70,000

Finished goods inventory, December 1                –0–

Production and Sales Data

Number of Headgears produced                        10,000

Expected sales in units for December

($40 unit sales price)                                              8,000

Expected sales in units for January                    10,000

Desired ending inventory                       20% of next month’s sales

Direct materials per finished unit                      1 kilogram

Direct materials cost                                              $7 per kilogram

Direct labor hours per unit                                  .35

Direct labor hourly rate                                         $20

Each cost is either fixed or variable. There are no mixed costs.

*Assume that Utility costs-factory are fixed costs.*

Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and 10,000 units, in 1,000-unit increments.

Answer 1

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			8,000 Units	9,000 Units	10,000 Units
Direct Material	units*1kg*$7		$          56,000	$          63,000	$             70,000
Direct Labor	units*0.35*$20		$          56,000	$          63,000	$             70,000
Depreciation on factory building			$             1,500	$             1,500	$               1,500
Insurance on factory building			$             1,500	$             1,500	$               1,500
Miscellaneous expenses—factory			$             1,000	$             1,000	$               1,000
Property taxes on factory building			$                400	$                400	$                   400
Rent on production equipment			$             6,000	$             6,000	$               6,000
Utility costs—factory			$                900	$                900	$                   900
Total manufacturing cost			$        123,300	$        137,300	$          151,300