P7-2 P7-3
P7-6 - WEEK 7 Problems
P7-2 Glide Tire Company's
budgeted unit sales for the year 2008 were:
Passenger car tires 120,000
Truck tires 25,000
The budgeted selling price for
truck tires was $200 per tire and for passenger car tires was $65 per tire. He
beginning finished goods inventories was expected to be 2,000 truck tires and
5,000 passenger tires, for a total cost of $326,478, with desired ending
inventories at 2,500 and 6,000, respectively, with a total cost of $400,510.
There was no anticipated beginning or ending work in process inventory for
either type of tire.
The standard materials quantities
for each type of fire were as follows:
Truck Passenger
Car Rubber 30lbs 10 lbs
Steel belts 4 lbs 1.5
lbs
The purchase prices of rubber and
steel were $2 and $3 per pound, respectively. The desired ending inventories
for rubber and steel were 75,000 and 7,500 pounds respectively. The estimated
beginning inventories for rubber and steel were 60,000 and 6,000 pounds,
respectively.
The direct labor hours required
for each type of tire were as follows:
Molding Department Finishing Department
Truck
Tire
0.25
0.15
Passenger car
tire
0.10 0.05
The direct labor rate for each
department is as follows:
Molding department
$15 per hour
Finishing
department
$13 per hour
Budgeted factory overhead costs
for 2008 were as follows:
Indirect materials
198,500
Indirect labor
213,200
Depreciation of building and
equipment
157,500
Power and light
122,900
Total
692,100
Required:
Prepare each of the following
budgets for Glide for the year ended 2008:
1. Sales budget
2. Production budget
3. Direct material budget
4. Direct labor budget
5. Factory overhead budget
6. Cost of goods sold budget
P7-3 A listing of budgeted
selling and administrative expenses for Glide Tire Company in P7-2 for the year
ended December 31, 2008, were as
follows:
Advertising expense
942,000
Office rent expense 125,000
Office salaries
expense 821,000
Office supplies expense
45,500
Officers' salaries expense 661,000
Sales salaries expense 868,000
Telephone and fax expense 33,500
Travel
expense 443,000
Required:
Prepare a selling and
administrative expenses budget, in good form, for the year 2008.
Using the information above and
the budgets prepared in P7-2, prepare a budgeted income statement for the year
2008, assuming an income tax rate of 40%.
P7-6
Flexible budget for factory
overhead
Presented below are the monthly
factory overhead cost budget (at normal capacity of 5,000 units or 20,000
direct labor hours) and the production and cost data for a month.
Factory
Overhead Cost Budget
Fixed
cost:
Depreciation on building and
machinery 1,200
Taxes on building and
machinery 500
Insurance on building and
machinery 500
Superintendent's salary 1,500
Supervisors'
salaries
2,300
Maintenance
wages 1,000
7,000
Variable
cost:
Repairs
400
Maintenance supplies 300
Other supplies 200
Payroll taxes 800
Small tools
300
2,000
Total standard factory
overhead
$9,000
Required:
1. Assuming that variable
costs will vary in direct proportion to the change in volume, prepare a
flexible budget for production levels of 80%, 90% and 110% of normal
capacity. Also determine the rate for application of factory overhead to
work in process at each level of volume in both units and direct labor hours.
2. Prepare a flexible
budget for production levels of 80%, 90% and 110%, assuming that variable costs
will vary in direct proportion to the change in volume, but with the following
exceptions. (Hint: Set up a third category for semi fixed
expenses).
a. At 110% of capacity, an
assistant department head will be needed at a salary of $10,500 annually.
b. At 80% of capacity, the
repairs expense will drop to one-half of the amount at 100% capacity.
c. Maintenance supplies
expense will remain constant at all levels of
production.
d. At 80% of capacity, one part-time
maintenance worker, earning $6,000 a year, will be laid off.
e. At 110% of capacity, a
machine not normally in use and on which no depreciation is normally recorded
will be used in production. Its cost was $12,000, it has a ten-year life,
and straight-line depreciation will be taken.
3. Using the facts and the
flexible budget prepared in 1, determine the budgeted cost at 96% of capacity,
using interpolation.
4. Using the flexible
budget prepared in 1, determine the budgeted cost at 104% capacity, using a
method other than interpolation.
TUTORIAL PREVIEW
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Glide Tire Company
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Sales Budget
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For the Year Ended
December 31, 2008
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Product
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Unit Sales Volume
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Unit Selling Price
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Total Sales
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Passenger car tires
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120,000
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$ 65
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$ 7,800,000
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Truck tires
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25,000
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$ 200
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5,000,000
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