Integrative Exercise Cost System Choice, Budgeting, Variance Analysis, Product Costing, and Data Analytics for Dawson Dental Products Budgeting and Variance Analysis Using Only a Single Unit-Level Driver Lawson Dental Products produces two different dental instruments in its St. Louis plant: crown crimping pliers and curved crown scissors. Amy Bunker, production manager, was upset with the latest performance report which indicated that she was $110,000 over the manufacturing budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Not only was she upset, but she was also genuinely puzzled by the results. Of the four major manufacturing inputs in the manufacturing cost budget (direct materials, direct labor, power, and setups), only the direct materials input was not over budget. The actual costs for these four inputs follow: Line Item Description Amount Direct materials $100,000 Direct labor 320,000 Power 135,000 Setups 140,000 Total $695,000 Amy knew that her operation had produced more than originally had been planned so that more power and labor had naturally been used. She also knew that the uncertainty in scheduling had led to more setups than planned. When she pointed this out to Hector Gomez, the plant controller, he assured her that the budgeted costs had been adjusted for the increase in production activity. Curious, Amy asked about the methods to make the adjustment. Hector: If the actual level of production activity differs from the original planned level, we adjust the budget using what are called flexible budget formulas—formulas that allow us to predict cost for different levels of activity. Amy: The approach seems reasonable. However, I’m sure something is wrong here. Tell me exactly how you adjusted the costs of direct materials, direct labor, power, and setups. Hector: First, we obtain formulas for the individual items in the budget by using the method of least squares. We assume that cost variations can be explained by variations in production activity where activity is measured by direct labor hours. Here is a list of the cost formulas (flexible budget formulas) for the four items you mentioned. The variable X is the number of direct labor hours. Direct materials cost = $5X Direct labor cost = $15X Power cost = $5,000 + $4X Setup cost = $100,000 Second, we predict what the costs should have been for the actual level of production activity for each item by using the actual direct labor hours. In your case, the actual direct labor hours used were 20,000 direct labor hours. Required: 1. Using the actual 20,000 direct labor hours, calculate what the costs should have been for each of the four manufacturing cost inputs. Line Item Description Amount Materials cost $fill in the blank 1 Labor cost $fill in the blank 2 Power cost $fill in the blank 3 Setup cost $fill in the blank 4 What are the total after-the-fact budgeted manufacturing costs? fill in the blank 1 of 1$ 2. Prepare a performance report using the flexible budget outcomes in Requirement 1. Line Item Description Actual Budgeted Variance Effect Direct Materials $fill in the blank 6 $fill in the blank 7 $fill in the blank 8 Direct Labor fill in the blank 10 fill in the blank 11 fill in the blank 12 Power fill in the blank 14 fill in the blank 15 fill in the blank 16 Setups fill in the blank 18 fill in the blank 19 fill in the blank 20 Total $fill in the blank 22 $fill in the blank 23 $fill in the blank 24

Integrative Exercise Cost System Choice, Budgeting, Variance Analysis, Product Costing, and Data Analytics for Dawson Dental Products Budgeting and Variance Analysis Using Only a Single Unit-Level Driver Lawson Dental Products produces two different dental instruments in its St. Louis plant: crown crimping pliers and curved crown scissors. Amy Bunker, production manager, was upset with the latest performance report which indicated that she was $110,000 over the manufacturing budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Not only was she upset, but she was also genuinely puzzled by the results. Of the four major manufacturing inputs in the manufacturing cost budget (direct materials, direct labor, power, and setups), only the direct materials input was not over budget. The actual costs for these four inputs follow: Line Item Description Amount Direct materials $100,000 Direct labor 320,000 Power 135,000 Setups 140,000 Total $695,000 Amy knew that her operation had produced more than originally had been planned so that more power and labor had naturally been used. She also knew that the uncertainty in scheduling had led to more setups than planned. When she pointed this out to Hector Gomez, the plant controller, he assured her that the budgeted costs had been adjusted for the increase in production activity. Curious, Amy asked about the methods to make the adjustment. Hector: If the actual level of production activity differs from the original planned level, we adjust the budget using what are called flexible budget formulas—formulas that allow us to predict cost for different levels of activity. Amy: The approach seems reasonable. However, I’m sure something is wrong here. Tell me exactly how you adjusted the costs of direct materials, direct labor, power, and setups. Hector: First, we obtain formulas for the individual items in the budget by using the method of least squares. We assume that cost variations can be explained by variations in production activity where activity is measured by direct labor hours. Here is a list of the cost formulas (flexible budget formulas) for the four items you mentioned. The variable X is the number of direct labor hours. Direct materials cost = $5X Direct labor cost = $15X Power cost = $5,000 + $4X Setup cost = $100,000 Second, we predict what the costs should have been for the actual level of production activity for each item by using the actual direct labor hours. In your case, the actual direct labor hours used were 20,000 direct labor hours. Required: 1. Using the actual 20,000 direct labor hours, calculate what the costs should have been for each of the four manufacturing cost inputs. Line Item Description Amount Materials cost $fill in the blank 1 Labor cost $fill in the blank 2 Power cost $fill in the blank 3 Setup cost $fill in the blank 4 What are the total after-the-fact budgeted manufacturing costs? fill in the blank 1 of 1$ 2. Prepare a performance report using the flexible budget outcomes in Requirement 1. Line Item Description Actual Budgeted Variance Effect Direct Materials $fill in the blank 6 $fill in the blank 7 $fill in the blank 8 Direct Labor fill in the blank 10 fill in the blank 11 fill in the blank 12 Power fill in the blank 14 fill in the blank 15 fill in the blank 16 Setups fill in the blank 18 fill in the blank 19 fill in the blank 20 Total $fill in the blank 22 $fill in the blank 23 $fill in the blank 24

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter7: The Master Budget And Flexible Budgeting

Section: Chapter Questions

Problem 1MC: Flexible budgeting, performance measurement, and ethics Montevideo Manufacturing, Inc. produces a...

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