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Question
Fields Company currently manufactures one of its parts at a cost of $3.25 per unit. This cost is based on a normal production rate of 50,000 units. Variable costs are $2.10 per unit, fixed costs related to making this part are $40,000 per year, and allocated fixed costs are $45,000 per year. Allocated fixed costs are unavoidable whether the company makes or buys the part. Fields is considering buying the part from a supplier for a quoted price of $2.80 per unit guaranteed for a three-year period. Should the company continue to manufacture the part, or should it buy the part from the outside supplier? Support your answer with analyses.
Answer
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Related questions
Q:
Although a fixed budget is only useful over the relevant range of operations, a flexible budget is useful over all possible production levels.
Q:
A fixed budget performance report never provides useful information for evaluating variances.
Q:
A variable or flexible budget is so named because it only focuses on variable costs.
Q:
Use the following information to prepare a budgeted income statement for Arbor Company for the month of June.
a. Beginning cash balance on June 1 is $52,000.
b. Cash receipts from sales: 40% is collected in the month of sale, 50% in the next month, and 10% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: April (actual), $1,450,000, May (actual), $1,600,000, and June (budgeted), $1,700,000.
c. Payments on merchandise purchases: 80% in the month of purchase and 20% in the month following purchase. Purchases amounts are May (actual), $830,000; and June (budgeted), $867,000.
d. Budgeted cash disbursements for salaries in June: $260,000. Salaries payable on May 31 are $60,000 and are expected to be $50,000 on June 30.
e. Budgeted depreciation expense for June: $24,000.
f. Other cash expenses budgeted for June: $282,000.
g. Accrued income taxes due in June: $48,000.
h. Bank loan interest due in June: $8,000 which represents the 1% monthly expense on a bank loan of $800,000.
i. Loan payment of $50,000 if the preliminary cash balance is greater than $100,000.
j. Cost of goods sold is 53% of sales.
k. The income tax rate applicable to the company is 30%.
Q:
Use the following information to prepare the June cash budget for Arbor Company. It should show expected cash receipts and cash disbursement for the month and the cash balance expected on June 30.
a. Beginning cash balance on June 1 is $52,000.
b. Cash receipts from sales: 40% is collected in the month of sale, 50% in the next month, and 10% in the second month after sale (uncollectible accounts are negligible and can be ignored). Sales amounts are: April (actual), $1,450,000, May (actual), $1,600,000, and June (budgeted), $1,700,000.
c. Payments on merchandise purchases: 80% in the month of purchase and 20% in the month following purchase. Purchases amounts are May (actual), $830,000; and June (budgeted), $867,000.
d. Budgeted cash disbursements for salaries in June: $260,000.
e. Budgeted depreciation expense for June: $24,000.
f. Other cash expenses budgeted for June: $282,000.
g. Accrued income taxes due in June: $48,000.
h. Bank loan interest due in June: $8,000.
i. Loan payment of $50,000 if the preliminary cash balance is greater than $100,000.
Q:
Stanton Co. produces and sells two lines of t-shirts, Deluxe and Mega. Stanton provides the following data. Compute the sales price and the sales volume variances for each product. Budget
Actual Unit sales price Deluxe .
$15
$16 Unit sales priceMega .
$20
$19 Unit salesDeluxe
2,400
2,500 Unit salesMega ..
2,000
1,900
Q:
What are the four steps in the effective management of variance analysis?
Q:
Cabot Company collected the following data regarding production of one of its products. Compute the direct materials cost variance. Direct materials standard (6 lbs. @ $2/lb.)
$12 per finished unit Actual direct materials used
243,000 lbs. Actual finished units produced
40,000 units Actual cost of direct materials used
$483,570 A. $6,000 favorable.
B. $3,570 unfavorable.
C. $2,430 favorable.
D. $6,000 unfavorable.
E. $3,570 favorable.
Q:
Brewer Company specializes in selling used cars. During the month, the dealership sold 22 cars at an average price of $15,000 each. The budget for the month was to sell 20 cars at an average price of $16,000. Compute the dealerships sales price variance for the month.
A. $22,000 unfavorable.
B. $10,000 favorable.
C. $22,000 favorable.
D. $32,000 unfavorable.
E. $32,000 favorable.
Q:
When recording the journal entry for labor, the Goods in Process Inventory account is
A. Debited for standard labor cost.
B. Debited for actual labor cost.
C. Credited for standard labor cost.
D. Credited for actual labor cost.
E. Not used.
Q:
Adams, Inc. uses the following standard to produce a single unit of its product: overhead (2 hrs. @ $3/hr.) $ 6. The flexible budget for overhead is $100,000 plus $1 per direct labor hour. Actual data for the month show overhead costs of $150,000, and 24,000 units produced. The overhead volume variance is:
A. $10,000 favorable.
B. $12,000 favorable.
C. $ 4,000 unfavorable.
D. $16,000 unfavorable.
E. $36,000 unfavorable.
Q:
Montaigne Corp. has the following information about its standards and production activity for November. The volume variance is: Actual total factory overhead incurred.
$28,175 Standard factory overhead: Variable overhead ...
$3.10 per unit produced Fixed overhead ($12,000/6,000 estimated units to be produced)
$2 per unit Actual units produced ..
4,800 units A. $1,295U.
B. $1,295F.
C. $2,400U.
D. $2,400F.
E. $3,695U.
Q:
The following information describes a company's usage of direct labor in a recent period. The direct labor rate variance is: Actual hours used .
45,000 Actual rate per hour ..
$15 Standard rate per hour ..
$14 Standard hours for units produced ...
47,000 A. $28,000 favorable.
B. $28,000 unfavorable.
C. $45,000 unfavorable.
D. $45,000 favorable.
E. $17,000 unfavorable.
Q:
The following information describes a company's usage of direct labor in a recent period. The direct labor efficiency variance is: Actual hours used .
45,000 Actual rate per hour ..
$15 Standard rate per hour ..
$14 Standard hours for units produced ...................
47,000 A. $28,000 unfavorable.
B. $28,000 favorable.
C. $45,000 unfavorable.
D. $45,000 favorable.
E. $17,000 unfavorable.
Q:
A(n) _______________________ is a department whose manager is responsible for using the center's assets to generate income for the center.
Q:
A ______________________________ accumulates and reports costs and expenses that a manager is responsible for, including budgeted amounts.
Q:
Cycle time is calculated by process time plus inspection time plus move time plus _____________.
Q:
A retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled $90,000 for the current year, and departmental sales were: Department A $356,250
Department B 641,250
Department C 427,500 How much advertising expense should be allocated to each department?
Q:
Leontif Corporation has a Parts Division that does work for other Divisions in the company as well as for outside customers. The company's Equipment Division has asked the Parts Division to provide it with 2,000 special parts each year. The special parts would require $17.00 per unit in variable production costs. The Equipment Division has a bid from an outside supplier for the special parts at $28.00 per unit. In order to have time and space to produce the special part, the Parts Division would have to cut back production of another part-the J789 that it presently is producing. The J789 sells for $34.00 per unit, and requires $22.00 per unit in variable production costs. Packaging and shipping costs of the J789 are $4.00 per unit. Packaging and shipping costs for the new special part would be only $0.50 per unit. The Parts Division is now producing and selling 10,000 units of the J789 each year. Production and sales of the J789 would drop by 10% if the new special part is produced for the Equipment Division. Required: a. What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 2,000 special parts per year from the Parts Division to the Equipment Division?
b. Is it in the best interests of Leontif Corporation for this transfer to take place? Explain.
Q:
Wilson Trade School allocates administrative costs to its respective departments based on the number of students enrolled, while maintenance and utilities are allocated per square feet of the classrooms. Based on the information below, what is the total amount allocated to the Automotive Department (rounded to the nearest dollar) if administrative costs for the school were $50,000, maintenance fees were $12,000, and utilities were $6,000? Department Students Classrooms Electrical............ 120 10,000 sq. ft.
Automotive. 70 12,000 sq. ft.
Secretarial 50 8,000 sq. ft.
Plumbing. 40 6,000 sq. ft...................... .
A. $ 0.
B. $17,000.
C. $18,500.
D. $22,667.
E. $30,000.
Q:
A company rents a building with a total of 100,000 square feet, which are evenly divided between two floors. The space on the first floor is considered twice as valuable as that on the second floor. The total monthly rent for the building is $30,000. How much of the monthly rental expense should be allocated to a department that occupies 10,000 square feet on the first floor?
A. $6,000.
B. $5,000.
C. $3,000.
D. $4,000.
E. $2,000.
Q:
Management by exception allows managers to focus on the most significant variances in performance.
Q:
At the end of the accounting period, immaterial variances are closed to _____________.
Q:
If actual price per unit of materials is greater than the standard price per unit of materials, the direct materials price variance is _______________________.
Q:
A company has established 5 pounds of Material M at $2 per pound as the standard for the material in its Product A. The company has just produced 1,000 units of this product, using 5,200 pounds of Material M that cost $9,880. The direct materials quantity variance is:
A. $400 unfavorable.
B. $120 favorable.
C. $400 favorable.
D. $520 favorable.
E. $520 unfavorable.
Q:
Bradford Company budgeted 4,000 pounds of material costing $5.00 per pound to produce 2,000 units. The company actually used 4,500 pounds that cost $5.10 per pound to produce 2,000 units. What is the direct materials quantity variance?
A. $ 400 unfavorable.
B. $ 450 unfavorable.
C. $2,500 unfavorable.
D. $2,550 unfavorable.
E. $2,950 unfavorable.
Q:
Sales variance analysis is useful for:
A. Planning purposes only.
B. Budgeting purposes only.
C. Control purposes only.
D. Planning and control purposes.
E. Planning and budgeting purposes.