Manufacturing overhead budget, direct labor budget, cash flow budget, and variance analysis

Shuck Inc. bases its manufacturing overhead budget on
budgeted direct labor-hours. The direct labor budget indicates
that 8,000 direct labor-hours will be required in May. The
variable overhead rate is $1.10 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $100,350
per month, which includes depreciation of $9,000. All other
fixed manufacturing overhead costs represent current cash
flows. The May cash disbursements for manufacturing overhead
on the manufacturing overhead budget should be:
$100,150
$109,150
$91,350
$8,800
LHU Corporation makes and sells a product called Product WZ.
Each unit of Product WZ requires 2.9 hours of direct labor at
the rate of $25.00 per direct labor-hour. Management would like
you to prepare a Direct Labor Budget for June.
The budgeted direct labor cost per unit of Product WZ would
be:
$6.80 per unit
$25.00 per unit
$41.70 per unit
$72.50 per unit

LHU Corporation makes and sells a product called Product WZ.
Each unit of Product WZ requires 2.3 hours of direct labor at
the rate of $19.00 per direct labor-hour.
The company plans to sell 42,000 units of Product WZ in June.
The finished goods inventories on June 1 and June 30 are
budgeted to be 640 and 140 units, respectively. Budgeted direct
labor costs for June would be: (Do not round intermediate
calculations.)
$1,813,550
$1,851,050
$1,832,300
$790,500
The manufacturing overhead budget at Cardera Corporation is
based on budgeted direct labor-hours. The direct labor budget
indicates that 8,000 direct labor-hours will be required in
January. The variable overhead rate is $9.60 per direct labor-
hour. The company's budgeted fixed manufacturing overhead is
$114,400 per month, which includes depreciation of $18,180.
All other fixed manufacturing overhead costs represent current
cash flows.
The January cash disbursements for manufacturing overhead on
the manufacturing overhead budget should be:
$96,220

$76,800
$191,200
$173,020
Sparks Corporation has a cash balance of $16,500 on April 1.
The company must maintain a minimum cash balance of
$13,500. During April, expected cash receipts are $63,000. Cash
disbursements during the month are expected to total $74,500.
Ignoring interest payments, during April the company will need
to borrow:
$5,000
$8,500
$13,500
$11,500
Veltri Corporation is working on its direct labor budget for the
next two months. Each unit of output requires 0.78 direct labor-
hours. The direct labor rate is $10.30 per direct labor-hour. The
production budget calls for producing 7,000 units in October
and 6,800 units in November. The company guarantees its direct
labor workers a 40-hour paid work week. With the number of
workers currently employed, that means that the company is
committed to paying its direct labor work force for at least
5,480 hours in total each month even if there is not enough
work to keep them busy. What would be the total combined
direct labor cost for the two months?
$124,671.20

$112,888.00
$110,869.20
$111,075.20
The Adams Corporation, a merchandising firm, has budgeted its
activity for November according to the following information:
• Sales at $530,000, all for cash.
• Merchandise inventory on October 31 was $240,000.
• The cash balance November 1 was $26,000.
• Selling and administrative expenses are budgeted at $84,000
for November and are paid for in cash.
• Budgeted depreciation for November is $41,000.
• The planned merchandise inventory on November 30 is
$270,000.
• The cost of goods sold is 70% of the selling price.
• All purchases are paid for in cash.
• There is no interest expense or income tax expense.
The budgeted cash receipts for November are:
$395,000
$530,000
$135,000
$571,000
Sarter Corporation is in the process of preparing its annual

budget. The following beginning and ending inventory levels
are planned for the year.
Beginning Inventory
Ending Inventory
Finished goods (units)
20,000
70,000
Raw material (grams)
50,000
40,000
Each unit of finished goods requires 2 grams of raw material.
If the company plans to sell 550,000 units during the year, the
number of units it would have to manufacture during the year
would be:
600,000 units
550,000 units
500,000 units
620,000 units
Roye Kennel uses tenant-days as its measure of activity; an
animal housed in the kennel for one day is counted as one
tenant-day. During September, Kennel budgeted for 3,400
tenant-days, but its actual level of activity was 3,460 tenant-
days. Kennel has provided the following data concerning the
formulas used in its budgeting and its actual results for
September:
Data used in budgeting:

Fixed element per month
Variable element per tenant-day
Revenue
—
$34.30
Wages and salaries
$2,300
$7.30
Food and supplies
1,300
13.80
Facility expenses
7,800
2.80
Administrative expenses
6,300
0.40
Total expenses
$17,700
$24.30
Actual results for September:
Revenue
$115,625
Wages and salaries
$28,530
Food and supplies
$49,580
Facility expenses
$16,500

$7,093
The overall revenue and spending variance (i.e., the variance
for net operating income in the revenue and spending variance
column on the flexible budget performance report) for
September would be closest to:
$2,378 U
$2,978 U
$2,978 F
$2,378 F
September:
Fixed element
per month
Revenue
—
$34.70
Wages and salaries
$2,700
$7.70
Food and supplies
1,700

14.20
Facility expenses
8,200
3.20
6,700
0.20
Total expenses
$19,300
$25.30
Revenue
$120,321
Wages and salaries
$28,570
Food and supplies
$56,975
Facility expenses
$19,989
$7,097
The spending variance for Food and supplies in September
would be closest to:
$1,315 F
$889 U
$889 F
$1,315 U
Gourley Clinic uses client-visits as its measure of activity.

During August, the clinic budgeted for 3,400 client-visits, but
its actual level of activity was 3,310 client-visits. The clinic has
provided the following data concerning the formulas to be used
in its budgeting:
Variable element per client-visit
Revenue
—
$39.40
Personnel expenses
$35,400
$10.60
Medical supplies
1,400
7.40
Occupancy expenses
8,400
1.40
5,400
0.5
Total expenses
$50,600
$19.90
The activity variance for administrative expenses in August
$105 F
$45 F
$105 U

$45 U
Thomasson Air uses two measures of activity, flights and
passengers, in the cost formulas in its budgets and performance
reports. The cost formula for plane operating costs is $36,320
per month plus $2,074 per flight plus $1 per passenger. The
company expected its activity in April to be 92 flights and 242
passengers, but the actual activity was 91 flights and 247
passengers. The actual cost for plane operating costs in April
was $225,110. The activity variance for plane operating costs in
April would be closest to:
$2,260 F
$2,260 U
$2,069 U
$2,069 F
Gourley Clinic uses client-visits as its measure of activity.
During August, the clinic budgeted for 3,200 client-visits, but
its actual level of activity was 3,150 client-visits. The clinic has
provided the following data concerning the formulas to be used
in its budgeting:
Variable element per client-visit
Revenue
—
$39.00
Personnel expenses
$35,000
$10.20

Medical supplies
1,000
7.00
Occupancy expenses
8,000
1.00
5,000
.10
Total expenses
$49,000
$18.30
The activity variance for personnel expenses in August would
be closest to:
$510 F
$510 U
$2,950 U
$2,950 F
Galante Kennel uses tenant-days as its measure of activity; an
tenant-day. During May, Kennel budgeted for 3,300 tenant-
days, but its actual level of activity was 3,280 tenant-days.
Kennel has provided the following data concerning the formulas
used in its budgeting and its actual results for May:
Fixed element
per month
Revenue
—
$29.80

Wages and salaries
$2,300
$5.80
Food and supplies
500
10.60
Facility expenses
7,300
2.80
7,100
0.40
Total expenses
$17,200
$19.60
Actual results for May:
Revenue
$107,080
Wages and salaries
$23,430
Food and supplies
$36,783
Facility expenses
$19,180
$9,126
The overall revenue and spending variance (i.e., the variance
for net operating income in the revenue and spending variance

column on the flexible budget performance report) for May
$2,305 F
$2,101 F
$2,305 U
$2,101 U
Paradiso Medical Clinic measures its activity in terms of
patient-visits. Last month, the budgeted level of activity was
1,130 patient-visits and the actual level of activity was 1,120
patient-visits. The cost formula for administrative expenses is
$3.70 per patient-visit plus $20,500 per month. The actual
administrative expense was $21,400. In the clinic's flexible
budget performance report for last month, the spending variance
for administrative expenses was:
$3,244 F
$1,270 U
$37 F
$3,281 F
Cadavieco Detailing's cost formula for its materials and
supplies is $1,910 per month plus $10 per vehicle. For the
month of November, the company planned for activity of 86
vehicles, but the actual level of activity was 51 vehicles. The
actual materials and supplies for the month was $2,430.
The activity variance for materials and supplies in November
$340 F

$350 U
$350 F
$340 U
Fixed element
per month
Revenue
—
$31.60
Wages and salaries
$4,100
$7.60
Food and supplies
700
12.40
Facility expenses
9,100
4.60
8,900
0.40

Total expenses
$22,800
$25.00
Revenue
$108,880
Wages and salaries
$23,610
Food and supplies
$36,801
Facility expenses
$19,360
$9,162
The net operating income in the flexible budget for May would
be closest to:
$19,947
$19,853
$10,992
$10,860
September:

Fixed element
per month
Revenue
—
$36.00
Wages and salaries
$2,700
$9.40
Food and supplies
1,900
15.90
Facility expenses
8,300
4.90
6,800
0.30
Total expenses
$19,700
$30.50
Revenue
$179,235
Wages and salaries
$28,740

Food and supplies
$89,785
Facility expenses
$35,875
$7,114
The spending variance for facility expenses in September would
be closest to:
$625 F
$331 U
$331 F
$625 U
Fixed element
per month
Revenue
—
$31.30
Wages and salaries
$3,800
$7.30
Food and supplies
400

12.10
Facility expenses
8,800
4.30
8,600
0.10
Total expenses
$21,600
$23.80
Revenue
$108,580
Wages and salaries
$23,580
Food and supplies
$36,798
Facility expenses
$19,330
$9,156
The activity variance for net operating income in May would be
closest to:
$5,316 F
$150 U
$150 F
$5,316 U
Cadavieco Detailing's cost formula for its materials and
supplies is $2,080 per month plus $14 per vehicle. For the

month of November, the company planned for activity of 88
vehicles, but the actual level of activity was 48 vehicles. The
actual materials and supplies for the month was $2,570
The spending variance for materials and supplies in November
$182 F
$182 U
$742 F
$742 U
The management of Freshwater Corporation is considering
dropping product C11B. Data from the company's accounting
system appear below:
Sales
$932,000
Variable expenses
$410,000
Fixed manufacturing expenses
$346,000
Fixed selling and administrative expenses
$253,000
All fixed expenses of the company are fully allocated to
products in the company's accounting system. Further
investigation has revealed that $212,000 of the fixed
manufacturing expenses and $123,000 of the fixed selling and
administrative expenses are avoidable if product C11B is
discontinued.
What would be the effect on the company's overall net operating
income if product C11B were dropped?

Overall net operating income would decrease by $187,000.
Overall net operating income would increase by $77,000.
Tawstir Corporation has 600 obsolete personal computers that
are carried in inventory at a total cost of $864,000. If these
computers are upgraded at a total cost of $200,000, they can be
sold for a total of $260,000. As an alternative, the computers
can be sold in their present condition for $40,000.
Suppose the selling price of the upgraded computers has not
been set. At what selling price per unit would the company be
as well off upgrading the computers as if it just sold the
computers in their present condition?
$100
$452
$400
$210
Tawstir Corporation has 500 obsolete personal computers that
are carried in inventory at a total cost of $720,000. If these
computers are upgraded at a total cost of $120,000, they can be
sold for a total of $180,000. As an alternative, the computers
can be sold in their present condition for $50,000.
What is the net advantage or disadvantage to the company from
upgrading the computers rather than selling them in their
present condition?
$130,000 advantage
$10,000 advantage

$680,000 disadvantage
$60,000 advantage
Gwinnett Barbecue Sauce Corporation manufactures a specialty
barbecue sauce. Gwinnett has the capacity to manufacture and
sell 14,000 cases of sauce each year but is currently only
manufacturing and selling 12,600. The following costs relate to
annual operations at 12,600 cases:
Total Cost
Variable manufacturing cost
$151,200
Fixed manufacturing cost
$53,000
Variable selling and administrative cost
$50,400
Fixed selling and administrative cost
$35,000
Gwinnett normally sells its sauce for $30 per case. A local
school district is interested in purchasing Gwinnett's excess
capacity of 1,400 cases of sauce but only if they can get the
sauce for $15 per case. This special order would not affect
regular sales or total fixed costs or variable costs per unit. If
this special order is accepted, Gwinnett's profits for the year
will:
increase by $840
decrease by $1,400
decrease by $12,600
decrease by $7,000

The management of Heider Corporation is considering dropping
product H58S. Data from the company's accounting system
appear below:
Sales
$980,000
Variable expenses
$402,000
Fixed manufacturing expenses
$384,000
Fixed selling and administrative expenses
$264,000
In the company's accounting system all fixed expenses of the
company are fully allocated to products. Further investigation
has revealed that $261,000 of the fixed manufacturing expenses
and $222,000 of the fixed selling and administrative expenses
are avoidable if product H58S is discontinued. What would be
the effect on the company's overall net operating income if
product H58S were dropped?
Eley Corporation produces a single product. The cost of
producing and selling a single unit of this product at the
company's normal activity level of 54,000 units per month is as
follows:
Direct materials
$49.60

Direct labor
$9.50
Variable manufacturing overhead
$2.50
Fixed manufacturing overhead
$20.10
Variable selling & administrative expense
$4.60
Fixed selling & administrative expense
$22
The normal selling price of the product is $114.10 per unit.
An order has been received from an overseas customer for 3,400
units to be delivered this month at a special discounted price.
This order would have no effect on the company's normal sales
and would not change the total amount of the company's fixed
costs. The variable selling and administrative expense would be
$2.60 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose there is ample idle capacity to produce the units
required by the overseas customer and the special discounted
price on the special order is $90.40 per unit. By how much
would this special order increase (decrease) the company's net
operating income for the month?
$(72,000)
$22,780
$91,120
$(60,860)
Fabio Corporation is considering eliminating a department that
has a contribution margin of $34,000 and $68,000 in fixed

costs. Of the fixed costs, $17,000 cannot be avoided. The effect
of eliminating this department on Fabio's overall net operating
income would be:
a decrease of $34,000.
an increase of $34,000.
a decrease of $17,000.
an increase of $17,000
Part A42 is used by Elgin Corporation to make one of its
products. A total of 25,500 units of this part are produced and
used every year. The company's Accounting Department reports
the following costs of producing the part at this level of
activity:
Per Unit
Direct materials
$9.40
Direct labor
$10.80
Variable manufacturing overhead
$7.40
Supervisor's salary
$7.50
Depreciation of special equipment
$9.90
Allocated general overhead
$7.20
An outside supplier has offered to make the part and sell it to
the company for $38.00 each. If this offer is accepted, the
supervisor's salary and all of the variable costs, including the

direct labor, can be avoided. The special equipment used to
make the part was purchased many years ago and has no salvage
value or other use. The allocated general overhead represents
fixed costs of the entire company, none of which would be
avoided if the part were purchased instead of produced
internally. In addition, the space used to make part A42 could
be used to make more of one of the company's other products,
generating an additional segment margin of $32,500 per year for
that product. What would be the impact on the company's
overall net operating income of buying part A42 from the
outside supplier?
Netoperating income would decrease by $41,450 per year.
Net operating income would decrease by $281,150 per year.
Net operating income would increase by $32,500 per year.
Net operating income would decrease by $344,250 per year.
Two products, IF and RI, emerge from a joint process. Product
IF has been allocated $20,300 of the total joint costs of
$41,000. A total of 2,700 units of product IF are produced from
the joint process. Product IF can be sold at the split-off point
for $12 per unit, or it can be processed further for an additional
total cost of $10,700 and then sold for $14 per unit. If product
IF is processed further and sold, what would be the effect on the
overall profit of the company compared with sale in its
unprocessed form directly after the split-off point?

$28,400 less profit
$5,300 less profit
$27,100 more profit
$15,000 more profit
Coakley Beet Processors, Inc., processes sugar beets in batches.
A batch of sugar beets costs $46 to buy from farmers and $20 to
crush in the company's plant. Two intermediate products, beet
fiber and beet juice, emerge from the crushing process. The beet
fiber can be sold as is for $22 or processed further for $14 to
make the end product industrial fiber that is sold for $34. The
beet juice can be sold as is for $42 or processed further for $40
to make the end product refined sugar that is sold for $80. How
much profit (loss) does the company make by processing the
intermediate product beet juice into refined sugar rather than
selling it as is?
$(29)
$(60)
$(2)
$(18)

Manufacturing overhead budget, direct labor budget, cash flow budget, and variance analysis

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