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E10-3 E10-7 E10-13 E10-19 P10-1A P10-4A

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ACC560 Chapter 10

E10-3 Thome Company uses a flexible budget for manufacturing overhead based on direct
labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
Indirect labor $1.00
Indirect materials 0.60
Utilities 0.40

Fixed overhead costs per month are supervision $4,000, depreciation $1,200, and property
taxes $800. The company believes it will normally operate in a range of 7,000–10,000 direct
labor hours per month.

Prepare a monthly manufacturing overhead flexible budget for 2014 for the expected
range of activity, using increments of 1,000 direct labor hours.

E10-7 Kitchen Help Inc. (KHI) is a manufacturer of toaster ovens. To improve control
over operations, the president of KHI wants to begin using a flexible budgeting system,
rather than use only the current master budget. The following data are available for KHI’s
expected costs at production levels of 90,000, 100,000, and 110,000 units.

Variable costs 
Manufacturing  $6 per unit 
Administrative  $4 per unit 
Selling  $2 per unit 
Fixed costs
 Manufacturing  $160,000
Administrative  $80,000

(a) Prepare a flexible budget for each of the possible production levels: 90,000, 100,000,
and 110,000 units.
(b) If KHI sells the toaster ovens for $16 each, how many units will it have to sell to make
a profit of $200,000 before taxes?

E10-13 Fultz Company’s organization chart includes the president; the vice president of
production; three assembly plants—Dallas, Atlanta, and Tucson; and two departments
within each plant—Machining and Finishing. Budget and actual manufacturing cost data
for July 2014 are as follows.

Finishing Department—Dallas: direct materials $41,500 actual, $44,000 budget;
direct labor $83,400 actual, $82,000 budget; manufacturing overhead $51,000 actual,
$49,200 budget.
Machining Department—Dallas: total manufacturing costs $220,000 actual, $219,000
Atlanta Plant: total manufacturing costs $424,000 actual, $421,000 budget.
Tucson Plant: total manufacturing costs $494,200 actual, $496,500 budget.

The Dallas plant manager’s office costs were $95,000 actual and $92,000 budget. The vice
president of production’s office costs were $132,000 actual and $130,000 budget. Office
costs are not allocated to departments and plants.

Using the format on page 453, prepare the reports in a responsibility system for:
(a) The Finishing Department—Dallas.
(b) The plant manager—Dallas.
(c) The vice president of production.

E10-19 The Pletcher Transportation Company uses a responsibility reporting system to
measure the performance of its three investment centers: Planes, Taxis, and Limos. Segment
performance is measured using a system of responsibility reports and return on investment
calculations. The allocation of resources within the company and the segment managers’
bonuses are based in part on the results shown in these reports.

Recently, the company was the victim of a computer virus that deleted portions of the
company’s accounting records. This was discovered when the current period’s responsibility
reports were being prepared. The printout of the actual operating results appeared as follows.
Planes Taxis Limos
Service revenue  $ ?  $500,000 $ ? 
Variable costs  5,500,000 ?  300,000
Contribution margin  ?  250,000 480,000
Controllable fixed costs  1,500,000 ?  ? 
Controllable margin  ?  80,000 240,000
Average operating assets  25,000,000 ?  1,500,000
Return on investment  13% 10% ? 

Determine the missing pieces of information above.

P10-1A Cook Company estimates that 300,000 direct labor hours will be worked during
the coming year, 2014, in the Packaging Department. On this basis, the budgeted manufacturing
overhead cost data, shown below, are computed for the year.

It is estimated that direct labor hours worked each month will range from 27,000 to 36,000

During October, 27,000 direct labor hours were worked and the following overhead
costs were incurred.

Fixed overhead costs: supervision $8,000, depreciation $6,000, insurance $2,460,
rent $2,000, and property taxes $1,500.

Variable overhead costs: indirect labor $12,432, indirect materials $7,680, repairs
$4,800, utilities $6,840, and lubricants $1,920.

(a) Prepare a monthly manufacturing overhead flexible budget for each increment of 3,000
direct labor hours over the relevant range for the year ending December 31, 2014.
(b) Prepare a flexible budget report for October.

P10-4A Clarke Inc. operates the Patio Furniture Division as a profit center. Operating
data for this division for the year ended December 31, 2014, are as shown below.

In addition, Clarke incurs $180,000 of indirect fixed costs that were budgeted at $175,000.
Twenty percent (20%) of these costs are allocated to the Patio Furniture Division.

(a) Prepare a responsibility report for the Patio Furniture Division for the year.
(b) Comment on the manager’s performance in controlling revenues and costs.
(c) Identify any costs excluded from the responsibility report and explain why they were

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