Tesla Motors assembles the fully electric Model S-85 automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is $58,800, which consists of: Direct materials $36,000 Direct manufacturing labor Variable manufacturing overhead $10,800 $12,000 Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard as- sembly time per vehicle is 20 hours. The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017, the budgeted normal capacity utilization is 3,000 vehicles per month. Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first three months of the year are: January February March Production Sales 3,200 2,000 2,400 2,900 3,800 3,200 Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption- costing income statements monthly, which include an adjustment for the production-volume variance oc- curring in that month. There are no variable cost variances or fixed overhead spending variances in the first three months of 2017. The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla S-85 vehicle.
Tesla Motors assembles the fully electric Model S-85 automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is $58,800, which consists of: Direct materials $36,000 Direct manufacturing labor Variable manufacturing overhead $10,800 $12,000 Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard as- sembly time per vehicle is 20 hours. The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017, the budgeted normal capacity utilization is 3,000 vehicles per month. Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first three months of the year are: January February March Production Sales 3,200 2,000 2,400 2,900 3,800 3,200 Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption- costing income statements monthly, which include an adjustment for the production-volume variance oc- curring in that month. There are no variable cost variances or fixed overhead spending variances in the first three months of 2017. The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla S-85 vehicle.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What are the different approaches Tesla Motors could take to reduce possible undesirable behavior associated with the use of absorption costing at its Fremont plant?
Transcribed Image Text:Tesla Motors assembles the fully electric Model S-85
automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is
$58,800, which consists of:
Direct materials
$36,000
Direct manufacturing labor
Variable manufacturing overhead
$10,800
$12,000
Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard as-
sembly time per vehicle is 20 hours.
The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The
budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated
on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017,
the budgeted normal capacity utilization is 3,000 vehicles per month.
Transcribed Image Text:Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first
three months of the year are:
January
February
March
Production
Sales
3,200
2,000
2,400
2,900
3,800
3,200
Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus
that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption-
costing income statements monthly, which include an adjustment for the production-volume variance oc-
curring in that month. There are no variable cost variances or fixed overhead spending variances in the first
three months of 2017.
The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla
S-85 vehicle.
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