Question

William Whitebear, general manager of the Kamloops Division of Canada Enterprises, is preparing for a management meeting. His divisional controller provided the following information:
1. The master budget for the fiscal year ended June 30, 20X4, follows:
Sales (50,000 units of A and 70,000 units of B) . $870,000
Manufacturing cost of goods sold ....... 740,000
Manufacturing margin ........... $130,000
Selling and administrative expenses ...... 120,000
Operating income ............. $ 10,000

2. The standard variable manufacturing cost per unit follows:


3. All budgeted selling and administrative expenses are common, fixed expenses; 60% are discretionary expenses.
4. The actual income statement for the fiscal year ended June 30, 20X4, follows:
Sales (53,000 units of A and 64,000 units of B) $861,000
Manufacturing cost of goods sold ... 749,200
Manufacturing margin ...... $111,800
Selling and administrative expenses .. 116,000
Operating income ......... $ (4,200)
5. The budgeted sales prices for products A and B were $9 and $6, respectively. Actual sales prices equaled budgeted sales prices.
6. The schedule of the actual variable manufacturing cost of goods sold by product follows (actual quantities in parentheses):


7. Products A and B are manufactured in separate facilities. Of the budgeted fixed manufacturing cost, $130,000 is separable as follows: $45,000 to product A and $85,000 to product B. Ten percent of these separate costs are discretionary. All other budgeted fixed manufacturing expenses, separable and common, are committed.
8. There are no beginning or ending inventories.
During the upcoming management meeting, it is quite likely that some of the information from the controller will be discussed. In anticipation you set out to prepare answers to possible questions.
1. Determine the firm’s budgeted break-even point in dollars, overall contribution-margin ratio, and contribution margins per unit by product. Assume no change in product mix.
2. Considering products A and B as segments of the firm, find the budgeted “contribution by segments” for each.
3. It is decided to allocate the budgeted selling and administrative expenses to the segments (in number 2) as follows: committed costs on the basis of budgeted unit sales mix and discretionary costs on the basis of actual unit sales mix. What are the final expense allocations? Briefly appraise the allocation method.
4. How would you respond to a proposal to base commissions to salespersons on the sales (revenue) value of orders received? Assume all salespersons have the opportunity to sell both products.
5. Determine the firm’s actual “contribution margin” and “contribution controllable by segment managers” for the fiscal year ended June 30, 20X4. Assume no variances in committed fixed costs.
6. Determine the “sales-activity variance” for each product for the fiscal year ended June 30, 20X4.
7. Determine and identify all variances in variable manufacturing costs by product for the fiscal year ended June 30,20X4.


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  • CreatedNovember 19, 2014
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