Boston Executive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: Cost per Unit Variable costs Direct material Direct labor Variable overhead Total variable costs Fixed costs: Variable Costs Direct material Direct labor Variable overhead Depreciation of equipment Depreciation of building Supervisors salaries Total fixed costs Total cost The company received an offer from Elite Mini-Bars to produce the insets for $2,120 per unit and supply 1,100 mini-bars for the coming year's estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company's total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. Fixed Costs Equipment depreciation Building depreciation The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $55,000 per year. A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank. Supervisor salaries $960 Other Cost Savings Leased space Cost of buying har inerts 660 Total cost 300 $1,920 $510 210 300 $1,020 $2,940 Cost of Making 1,100 Bar Inserts 1,056,000 ✓ 726,000 ✓ 330,000 ✓ 2,112,000 ✓ 561,000 ✓ 231,000 ✓ 330,000 ✓ 1,122,000 v ✓ Cost of Buying 1,100 Bar Inserts 561,000✔ 231,000 ✓ 792,000 ✓ 2,332,000 ✓ Differential Cost (Savings) s 1,056,000 ✓ 726,000 ✓ 330,000 ✓ 2,112,000 ✓ o✓ 0 0 o✓ 330,000 ✓ 330,000 ✓ 56,000 ✓ 2,332,000 ✓ 2,276,000 ✓ 166,000 ✓
Boston Executive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs: Cost per Unit Variable costs Direct material Direct labor Variable overhead Total variable costs Fixed costs: Variable Costs Direct material Direct labor Variable overhead Depreciation of equipment Depreciation of building Supervisors salaries Total fixed costs Total cost The company received an offer from Elite Mini-Bars to produce the insets for $2,120 per unit and supply 1,100 mini-bars for the coming year's estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process demonstrated in this problem, the company's total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased. Fixed Costs Equipment depreciation Building depreciation The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $55,000 per year. A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank. Supervisor salaries $960 Other Cost Savings Leased space Cost of buying har inerts 660 Total cost 300 $1,920 $510 210 300 $1,020 $2,940 Cost of Making 1,100 Bar Inserts 1,056,000 ✓ 726,000 ✓ 330,000 ✓ 2,112,000 ✓ 561,000 ✓ 231,000 ✓ 330,000 ✓ 1,122,000 v ✓ Cost of Buying 1,100 Bar Inserts 561,000✔ 231,000 ✓ 792,000 ✓ 2,332,000 ✓ Differential Cost (Savings) s 1,056,000 ✓ 726,000 ✓ 330,000 ✓ 2,112,000 ✓ o✓ 0 0 o✓ 330,000 ✓ 330,000 ✓ 56,000 ✓ 2,332,000 ✓ 2,276,000 ✓ 166,000 ✓
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Boston Executive, Inc., produces executive limousines and currently manufactures the mini-bar inset at these costs:
Cost per Unit
Variable costs
Direct material
Direct labor
Variable overhead
Total variable costs
Fixed costs:
Variable Costs
Direct material
Direct labor
Variable overhead
Depreciation of equipment
Depreciation of building
Supervisors salaries
Total fixed costs
Total cost
The company received an offer from Elite Mini-Bars to produce the insets for $2,120 per unit and supply 1,100 mini-bars for the coming year's estimated production. If the company accepts this offer and shuts down production of this part of the business, production workers and supervisors will be reassigned to other areas. Assume that for the short-term decision-making process
demonstrated in this problem, the company's total labor costs (direct labor and supervisor salaries) will remain the same if the bar inserts are purchased.
Fixed Costs
Equipment depreciation
Building depreciation
The specialized equipment cannot be used and has no market value. However, the space occupied by the mini-bar production can be used by a different production group that will lease it for $55,000 per year.
A. Calculate the differential cost of mini-bar insert. If an amount box does not require an entry, leave it blank.
Supervisor salaries
$960
Other Cost Savings
Leased space
Cost of buying har inerts
660
Total cost
300
$1,920
$510
210
300
$1,020
$2,940
Cost of Making
1,100 Bar Inserts
1,056,000 ✓
726,000 ✓
330,000 ✓
2,112,000 ✓
561,000 ✓
231,000 ✓
330,000 ✓
1,122,000 v
✓
Cost of Buying
1,100 Bar Inserts
561,000✔
231,000 ✓
792,000 ✓
2,332,000 ✓
Differential Cost
(Savings)
s
1,056,000 ✓
726,000 ✓
330,000 ✓
2,112,000 ✓
o✓
0
0
o✓
330,000 ✓
330,000
✓
56,000 ✓
2,332,000 ✓
2,276,000 ✓
166,000 ✓
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