In this project you will apply the techniques and principles of budgeting and standard costs to the operations of Speedway Toys, Inc. You will prepare budgets for the year ended December 31, 20XX, determine standards costs per hour and per unit of product, and compute variances for the month of January 20XX.

Company’s Operations

Speedway Toys, Inc., manufactures a battery-powered toy car that is sold in toy stores and department stores. In the firm’s manufacturing process, highly skilled employees operate molding machines that form semi-liquid plastic into car bodies. Assembly personnel insert a battery driven motor assembly, which the firm purchases from a subcontractor, into the molded car body. Then the assembly personnel add wheels and axles (also purchased from a subcontract) and decorative trim to complete the car.

Preparation Budgets

SALES BUDGET

The sales manager and her staff have analyzed sales records and other data and forecast that 61,000 cars will be sold in 20XX. Standard costs are to be based on this volume of production, which should require 30,000 direct labor hours.

PRODUCTION BUDGET

Speedway Toys, Inc., expects to begin 20XX with an inventory of 7,000 completed toy cars. The company would like to reduce its finished goods inventory of toy cars at the end of 20XX by 1,000 cars to 6,000 cars.

STANDARDS FOR DIRECT MATERIALS AND DIRECT LABOR

Speedway Toys, Inc., has established the following standards for direct materials and direct labor, which should be attainable under normal circumstances. Later you will be instructed to compute the standard cost per hour of direct labor and per unit of product. Data related to direct materials follow:

Material	Quantity	Cost per Unit	Cost per Car
Plastic	1.5 lb per car	$3.40 per lb	$5.10
Motor assembly	1 motor per car	$6.50 per motor	$6.50
Wheels and axles	1 set per car	$0.40 per set	$0.40
			$12.00

NOTE: Paint and stickers for decorative trim are considered part of indirect materials.

Data related to direct labor follow:

Job Title	Hours per Car	Rate per Car	Cost per Car
Molders	0.2	$15.00	$3.00
Assemblers	0.3	$18.00	$5.40
	0.5		$8.40

MATERIALS BUDGET

Beginning inventories of raw materials on January 1, 20XX, are expected to be as follows:

Material	Amount
Plastic	5,500 lb
Motors	4,000 motors
Wheels and axles	2,500 sets

Speedway Toys, Inc., would like to have enough raw materials on hand at the end of the year to equal the following percentages of 20XX budgeted requirements:

Material	Percentage of 20XX Budget
Plastic	5%
Motors	10%
Wheels and axles	1%

MANUFACTURING OVERHEAD BUDGET

The following information related to variable and fixed manufacturing overhead costs for 20XX has been assembled. Later you will be directed to complete the manufacturing overhead budget and compute the standard overhead cost per hour and per unit.

SPEEDWAY TOYS, INC.
Analysis of Fixed and Variable Overhead Costs
Year Ended December 31, 20XX
	VARIABLE OVERHEAD PER HOUR	FIXED OVERHEAD
Controllable Costs
Indirect Materials	$0.04	----
Indirect Labor	2.00	$60,000
Payroll Taxes and Fringe Benefits	2.80	9,000
Utilities	0.32	12,000
Repairs and Miscellaneous	0.34	9,600
Non-controllable Costs
Depreciation	----	42,000
Insurance	----	12,000
Total Manufacturing Overhead	$5.50	$144,600

BUDGETING PROCEDURED TO BE COMPLETED

To contribute to the budgeting of Speedway Toys, Inc., you are to prepare the following budgets for the year ended December 31, 20XX. Remember that the sales budget has already been prepared.

INSTRUCTIONS

A-1 Prepare a production budget based on expected production for 20XX.

A-2 Prepare a materials budget based on expected production for 20XX.

A-3 Prepare a direct labor budget based on expected production for 20XX.

A-4 Prepare a monthly flexible overhead budget at 90, 100, and 110 percent of capacity. Capacity is considered to be the 30,000 direct labor hours required to manufacture the 60,000 cars projected for 20XX.

A-5 Prepare a manufacturing costs budget. (Include costs per car.)

A-6 Using the budget overhead for 20XX computed at 100 percent of capacity (in Instruction A-4), compute the standard cost per direct labor hour and the standard cost per unit of product for 20XX.