COMPREHENSIVE PROBLEM 6
60 minutes,
Strong
Utease Corporation
This problem covers various topics from Chapters 22, 23, 24, and 25. Students
are asked to prepare budget schedules, calculate variances, determine possible
causes for differences between budgeted and actual results, and to perform ROI
analysis.
COMPREHENSIVE PROBLEM 6
UTEASE CORPORTION
a.
Units
20,000
2,000
b. BELLINGHAM PLANT
Budgeted Income Statement
Year Ending December 31, 20___
Sales Revenue (20,000 units × $425 per unit) 8,500,000$
Cost of Goods Sold (20,000 units × $250 per unit) 5,000,000
Gross Profit 3,500,000
Operating Expenses:
Total Operating Expenses 1,900,000
Operating Income 1,600,000$
Add: Desired ending inventory of finished goods (.10 × 20,000 units) …………………………………..
60 Minutes, Strong
Production Budget:
Budgeted unit sales ……………………………………………………………………………..
22,000
Units budgeted to be available for sale ……………………………………………………..
Less: Beginning inventory units ………………………………………………………….
c.
($90 per hour × 34,000 hours) – $3,094,000
COMPREHENSIVE PROBLEM 6
UTEASE CORPORATION (continued)
Direct labor variances:
The labor rate variance is considered unfavorable because the wage costs were higher for
The labor efficiency variance is considered favorable because it took workers 500 fewer
$90 per hour (34,500 – 34,000)
d.
$0 no variance
e.
Variable
Total actual overhead
Total overhead applied
Fixed
COMPREHENSIVE PROBLEM 6
UTEASE CORPORATION (continued)
Direct materials variances:
There is no materials price variance because the actual price paid per pound of
materials was exactly as expected.
Total over/underapplied overhead:
Overhead applied:
The materials quantity variance is considered unfavorable because 4,000 more
$20 per pound (46,000 – 50,000 pounds)
f. $ 9,030,000
Cost of Goods Sold* …………………………………………………………
5,419,000
g. $ 1,855,000
1,611,000
1,600,000
1,611,000
Master budget variance………………………………………………
Budgeted operating profit ……………………………………………
Flexible budget variance ……………………………………………
less: Actual operating profit ………………………..…………………
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 ………………………….………………..
COMPREHENSIVE PROBLEM 6
UTEASE CORPORTATION (continued)
Sales Revenue (21,500 units × $420 per unit) …………………………….
2,000,000
5,419,000
j.
COMPREHENSIVE PROBLEM 6
UTEASE CORPORTATION (concluded)
The plant manager’s bonus should be based on the ROI the plant earns after subtracting the
corporate-wide administrative expenses. Evaluating the plant as an investment center