The coating department of a parts manufacturing department coats various parts with an antirust, zinc- based material. The parts to be processed are loaded into baskets; the baskets are passed through a coating machine that dips the parts into the zinc solution. The machine then heats the parts to ensure that the coating bonds properly. All parts being coated are assigned a cost for the coating department based on the number of hours the parts spend in the coating machine. Prior to the beginning of the year, cost categories are accumulated by department (including the coating department). These cost categories are classified as either fixed or variable and then a flexible budget for the department is constructed. Given an estimate of machine hours for the next year, the coating department’s projected cost per machine hour is computed.
Here are data for the last three operating years. Expected coating machine hours for 2012 arre 16,000 hours.
| COATING DEPARTMENT Operating Data | |||
| 2009 | 2010 | 2011 | |
| Machine hours | 12,500 | 8,400 | 15,200 |
| Coating materials | $ 51,375 | $ 34,440 | $ 62,624 |
| Engineering support | 27,962 | 34,295 | 31,300 |
| Maintenance | 35,850 | 35,930 | 36,200 |
| Occupancy costs (square footage) | 27,502 | 28,904 | 27,105 |
| Operator labor | 115,750 | 78,372 | 147,288 |
| Supervision | 46,500 | 47,430 | 49,327 |
| Utilities | 12,875 | 8,820 | 16,112 |
| Total costs | $317,814 | $268,191 | $369,956 |
Required:
a. Estimate the coating department’s flexible budget for 2012. Explicitly state and justify the assumptions used in deriving your estimates.
b. Calculate the coating department’s cost per machine hour for 2012.
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