BYP 10-1 DECISION-MAKING AT CURRENT DESIGNS
(a) Current Designs
Rotomolded Line
Manufacturing Budget
For the Year Ended December 31, 2013
4,000 kayaks
Units to be produced
Calculation
Amount budgeted
Costs:
Variable costs
Polyethylene powder
4,000 X 54 X $1.50
$ 324,000
Finishing kits
4,000 X $170
680,000
Labor—type I
4,000 X 2 X $15
120,000
Labor—type II
4,000 X 3 X $12
144,000
Indirect materials
40,000
Manufacturing supplies
53,800
Maintenance and utilities
88,000
Total variable costs
1,449,800
Fixed costs
Supervision
90,000
Insurance
14,400
Depreciation
109,800
Total fixed costs
214,200
Total costs
$1,664,000
BYP 10-1 (Continued)
(b) Current Designs
Rotomolded Line
Manufacturing Flexible Budget Report
For the Quarter Ended March 31, 2013
Units to be produced
1,000 kayaks
1,050 kayaks
Costs:
Variable costs
Polyethylene powder
(54 X 1.50 per unit)
$ 81,000
$ 85,050.00
Finishing kits
($170 per unit)
170,000
178,500.00
Labor—type I
(2 hours per unit X
$15 per hour)
30,000
31,500.00
Labor—type II
(3 hours per unit X
$12 per hour)
36,000
37,800.00
Indirect materials
($10* per unit)
9,000
10,000
10,500.00
Manufacturing supplies
($13.45** per unit)
13,450
14,122.50
Maintenance and utilities
($22*** per unit)
22,000
23,100.00
Total variable costs
($362.45 per unit)
362,450
380,572.50
Fixed costs
Supervision a
22,500
22,500.00
Insurance b
3,600
3,600.00
Depreciation c
27,450
27,450.00
Total fixed costs
53,550
53,550.00
Total costs
$416,000
$434,122.50
*$40,000 ÷ 4,000 a. $ 90,000 ÷ 4
**$53,800 ÷ 4,000 b. $ 14,400 ÷ 4
***$88,000 ÷ 4,000 c. $109,800 ÷ 4
BYP 10-1 (Continued)
(c) Current Designs
Rotomolded Line
Manufacturing Flexible Budget Report
For the Quarter Ended March 31, 2013
Units to be produced
Budget for
1,050 kayaks
Actual costs for
1,050 kayaks
Difference
F = favorable
U = unfavorable
Costs:
Variable costs
Polyethylene
powder
$ 85,050.00
$ 87,000.00
$1,950.00
U
Finishing kits
178,500.00
178,840.00
340.00
U
Labor—type I
31,500.00
31,500.00
0
Labor—type II
37,800.00
39,060.00
1,260.00
U
Indirect materials
10,500.00
10,500.00
0
Manufacturing
supplies
14,122.50
14,150.00
27.50
U
Maintenance and
utilities
23,100.00
26,000.00
2,900.00
U
Total variable costs
380,572.50
387,050.00
6,477.50
U
Fixed costs
Supervision
22,500.00
20,000.00
2,500.00
F
Insurance
3,600.00
3,600.00
0
Depreciation
27,450.00
27,450.00
0
Total fixed costs
53,550.00
51,050.00
2,500.00
F
Total costs
$434,122.50
$438,100.00
$3,977.50
U
BYP 10-2 DECISION-MAKING ACROSS THE ORGANIZATION
(a) 1. The primary causes of the loss in net income were the decrease in
the number of boarding days and the decrease in the boarding
fee. The number of boarding days decreased by 2,900 or approxi-
mately 13% (2,900 days ÷ 21,900 days), and the boarding fee
should decline by $25,520
$192,720 X 2,900
21,900
. However, variable
expenses only declined by $14,330 or about 7.4% ($14,330 ÷
entertainment.
3. Management’s decisions to stay competitive probably were sound.
Given the decline in boarding days, the decision not to replace the
worker was sound. The decision to reduce rates was probably
even greater.
BYP 10-2 (Continued)
(b) GREEN PASTURES
Income Statement
Flexible Budget Report
For the Year Ended December 31, 2014
Difference
Boarding days (BD)
Sales ($25)
Less variable expenses
Feed ($5)
Veterinary fees ($3)
Blacksmith fees ($.25)
Supplies ($.55)
Total variable
expenses ($8.80)
Contribution margin
Less fixed expenses
Depreciation
Insurance
Utilities
Repairs and maintenance
Labor
Advertising
Entertainment
Budget at
19,000 BD
$475,000
95,000
57,000
4,750
10,450
167,200
307,800
40,000
11,000
14,000
11,000
95,000
8,000
5,000
Actual at
19,000 BD
$380,000
104,390
58,838
4,984
10,178
178,390
201,610
40,000
11,000
12,000
10,000
88,000
12,000
7,000
Favorable F
Unfavorable U
$ 95,000 U
9,390 U
1,838 U
234 U
272 F
11,190 U
106,190 U
$ 0 U
0 U
2,000 F
1,000 F
7,000 F
4,000 U
2,000 U
BYP 10-2 (Continued)
2. Management did a poor job of controlling variable expenses. These
3. As noted in part (a), management’s decisions to stay competitive
probably were sound.
(d) Given that the industry is “extremely competitive,” management should
this strategy.)
Option two is to offer its customers a superior product or service. If cus-
tomers perceive that Green Pastures is the “best” boarding stable in
BYP 10-3 MANAGERIAL ANALYSIS
Stephen Flott—Cost Center: Responsible for inventory cost, adver-
tising, sales personnel, printing, and travel. As a cost center manager,
Jose Gomez—Investment Center: Responsible for all items shown.
(b) Mary Gammel Budget differences: The cost of goods sold is 28%
($42,000 ÷ $150,000) above budget and so should definitely be brought
to her attention. Travel is 30% ($6,000 ÷ $20,000) below budget.
costs.
Stephen Flott Budget differences: The cost of goods sold, which is
22% ($22,000 ÷ $100,000) above budget, should definitely be brought to
his attention. Travel costs are 30% ($9,000 ÷ $30,000) below budget.
means. The 67% ($20,000 ÷ $30,000) increase in rent and 10% ($10,000
÷ $100,000) decrease in depreciation are not under his control and so
should not be brought to his attention. It should probably be pointed
BYP 10-3 (Continued)
goods sold.) Thus, the 6% [($26,500 – $25,000) ÷ $25,000] increase in
cost of goods sold should be brought to his attention. Travel is below
budget 25% ($500 ÷ $2,000), which is $500. This is not a large percentage
of total costs, nor is it a large dollar amount, so there could be an argu-