Atlas Road Maps Produces Roadmaps

1.Atlas Road Maps produces road maps. Atlas uses a standard cost system to control manufacturing costs.
 
The following standard cost unit information is based on the static budget volume of 120,000 road maps per month:
 
                                                                                                           
 
Direct materials (40 sq. yards @ $0.02 per sq. yard)              $0.80
Direct labor (0.10 hours @ $15.00 per hour)                            1.50
Manufacturing overhead:
Variable (0.10 hours @ $3.00 per hour)         0.30
Fixed (0.10 hours @ $8.00 per hour)              0.80     1.10
Total cost per map                                                                   $3.40
                                                                                                           
 
Actual cost and production volume information is as follows:
 

  • Actual production was 118,000 maps.
  • Actual direct materials usage was 4,838,000 square yards; 5,000,000 square yards were purchased at an actual cost of $0.016 per square yard.
  • Actual direct labor usage of 11,600 hours at a total cost of $140,360.
  • Total actual overhead was $126,000, of which 75 percent was fixed.

 
Requirements:
 

  1. Compute the eight variances that were discussed in class.

 
 
 

  1. Discuss some of the possible reasons why the variances computed turned out to be those amounts.

 
 

  1. Cobalt Industries makes tennis balls. Its only plant can produce up to 2.5 million cans of balls per year. Current production is 2 million cans.  Annual manufacturing, selling, and administrative fixed costs total $700,000.  The variable cost of making and selling each can of balls is $1.00. Stockholders expect a 12% annual return on the company’s $3 million of assets.

 
Required:
 

  1. What is Cobalt’s current full cost of making and selling 2 million cans of tennis balls? What is the current full unit cost of each can of tennis balls?

 

  1. Assume Cobalt is a price-taker, and the current market price is $1.45 per can of balls (this is the price at which manufacturers sell to retailers). Given Cobalt Industries’ current costs will the company reach stockholders’ profit goals?

 

  1. Suppose Cobalt could spend an extra $100,000 on advertising to differentiate its product so that it could be a price setter. Assuming the original volume and costs, plus the $100,000 of new advertising costs, what cost-plus price will Cobalt want to charge for a can of balls to realize stockholders’ profit goals?

 

  1. Nike has just asked Cobalt to supply the company with 400,000 cans of balls at a special order price of $1.20 per can. Nike wants Cobalt to package the balls under the Nike label (Cobalt will imprint the Nike logo on each ball and can). Cobalt will have to spend $10,000 to change the packaging machinery.  Assuming the original volume and costs, should Cobalt Industries accept this special order?

 

  1. Mantle Corp. prepared a budget last period that called for sales of 20,000 units at a price of $20 each. The costs per unit were estimated to amount to $10 variable and $4 fixed. During the period, production was exactly equal to actual sales of 24,000 units.  The selling price was $19.00 per unit.  Variable costs were $12 per unit.  Fixed costs actually incurred were $95,000.

 
Required:

  1. Prepare a report to show the difference between the actual contribution margin per the static budget and the budgeted contribution margin per the flexible budget.
  2. Explain the significance of the comparisons.

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