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
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.
- Compute the eight variances that were discussed in class.
- Discuss some of the possible reasons why the variances computed turned out to be those amounts.
- 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.
- 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?
- 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?
- 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?
- 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?
- 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.
- 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.
- Explain the significance of the comparisons.