In this project you will apply the techniques and principles of budgeting and standard costs to the
Question:
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 |
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 | FIXED | |
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.
Modern Advanced Accounting in Canada
ISBN: 978-1259087554
7th edition
Authors: Hilton Murray, Herauf Darrell