Willis corporation manufactures industrial size gas furnaces and uses

Student Name:

1) (10 points) Donald's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:

Direct materials $ 20,000

Direct labor 5,000

Variable overhead costs 15,000

Fixed overhead costs 10,000

Total costs $50,000

It is estimated that 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Donald's Engine Company has the option of purchasing the part from an outside supplier at $42.50 per unit.

a) If Donald's Engine Company accepts the offer from the outside supplier, the monthly avoidable costs (costs that will no longer be incurred) total:

b) If Donald's Engine Company purchases 1,000 TE456 parts from the outside supplier per month, then its monthly operating income will:

c) The maximum price that Donald's Engine Company should be willing to pay the outside supplier is:

2) (10 points) Willis Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data:

Budgeted output units 30,000 units

Budgeted machine-hours 10,000 hours

Budgeted variable manufacturing overhead costs for 15,000 units $322,500

Actual output units produced 44,000 units

Actual machine-hours used 14,400 hours

Actual variable manufacturing overhead costs $484,000

What is the budgeted variable overhead cost rate per output unit?

3) (10 points) Meale Company makes a household appliance with model number X500. The goal for 2012 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2011 to 2012. The following additional data are available for 2011 and 2012:

2011 2012

Units of X500 produced and sold 10,000 11,000

Selling price $100 $95

Direct materials (square feet) 30,000 29,000

Direct material costs per square foot $10 $11

Manufacturing capacity for X500 (units) 12,500 12,000

Total conversion costs $250,000 $240,000

Conversion costs per unit of capacity $20 $20

a) What is operating income for 2011?

b) What is operating income for 2012?

4) (10 points) Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labor. In 2011, AVO estimated the following standard costs for one of their most well-loved products, the AVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples.

Budgeted quantity Budgeted price

Direct materials 1.5 pounds $7.25 per pound

Direct labor 0.25 hours $14.00 per hour

During September, AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $7.00 and 280 direct labor hours at an average wage of $14.25 per hour.

a) September's direct material flexible-budget variance is:

b) September's direct material price variance is:

c) September's direct material efficiency variance is: