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COMPREHENSIVE PROBLEM 6
Utease Corporation Strong
60
COMPREHENSIVE PROBLEM 6
UTEASE CORPORTION
a.
Units
20,000
22,000
0
22,000
b. BELLINGHAM PLANT
Bud
g
eted Income Statement
Year Endin
g
December 31, 20___
Sales Revenue
(
20,000 units × $425 per unit
)
8,500,000$
Cost of Goods Sold
(
20,000 units × $250 per unit
)
5,000,000
Gross Profit 3,500,000
Operatin
g
Expenses:
V
ariable Sellin
g
and Administrative Expense
(
20,000 units × $5 per unit
)
100,000
Fixed Sellin
g
and Administrative Expense 1,800,000
Total Operatin
g
Expenses 1,900,000
Operatin
g
Income 1,600,000$
Units budgeted to be available for sale ………………………………………
…
Less: Beginning inventory units ………………………………………………
…
Planned Production of Finished Goods ………………………………………
…
60 Minutes, Strong
Production Budget:
Budgeted unit sales ……………………………………………………………
…
c.
=
Labor efficiency variance standard hourly rate [(actual units produced × standard
COMPREHENSIVE PROBLEM 6
UTEASE CORPORATION (continued)
Direct labor variances:
d.
=
Materials quantity
variance standard price per pound [(actual units produced ×
standard pounds per unit) - actual pounds used]
COMPREHENSIVE PROBLEM 6
UTEASE CORPORATION (continued)
Direct materials variances:
f. $ 9,030,000
Cost of Goods Sold* ………………………………………………………… 5,419,000
Gross Profit ………………………………………………………………….. $ 3,611,000
Direct labor efficiency variance …………………………………………. (45,000)
Direct labor rate variance ……………………………………………….. 34,000
g. $ 1,855,000
1,611,000
COMPREHENSIVE PROBLEM 6
UTEASE CORPORTATION (continued)
Sales Revenue (21,500 units × $420 per unit) …………………………….
ROI is 20% (see part h. ), the addition of the new equipment would lower the plant’s ROI
and lower the manager’s bonus. So the plant manager may not undertake this investment. In
order to encourage investment above the corporation’s required rate of return, Utease
Corporation could use residual income or EVA (economic value added) measures of plant
performance. In addition, Utease may want to consider using the balanced scorecard.
Flexible budget operating profit ………………………………………
less: Actual operating profit ………………………....………………..
Adjust for variances:
COMPREHENSIVE PROBLEM 6
UTEASE CORPORTATION (concluded)
