The Current Designs staff has prepared the annual manufacturing budget for the rotomolded line based on an estimated annual production of 4,000 kayaks during 2013. Each kayak will require 54 pounds of polyethylene powder and a finishing kit (rope, seat, hardware, etc.). The polyethylene powder used in these kayaks costs $1.50 per pound, and the finishing kits cost $170 each. Each kayak will use two kinds of labor—2 hours of type I labor from people who run the oven and trim the plastic, and 3 hours of work from type II workers who attach the hatches and seat and other hardware. The type I employees are paid $15 per hour, and the type II are paid $12 per hour.
Manufacturing overhead is budgeted at $396,000 for 2013, broken down as follows.
Variable costs
Indirect materials ………….. $ 40,000
Manufacturing supplies ……… 53,800
Maintenance and utilities ……. 88,000
181,800
Fixed costs
Supervision ………………….. 90,000
Insurance ……………………. 14,400
Depreciation ………………… 109,800
214,200
Total ……………………………… $396,000
During the first quarter, ended March 31, 2013, 1,050 units were actually produced with the following costs.
Polyethylene powder ………………………… $ 87,000
Finishing kits …………………………………. 178,840
Type I labor …………………………………….. 31,500
Type II labor ……………………………………. 39,060
Indirect materials ………………………………. 10,500
Manufacturing supplies ……………………….… 14,150
Maintenance and utilities ………………………. 26,000
Supervision ……………………………….. 20,000
Insurance …………………………………… 3,600
Depreciation ………………………………. 27,450
Total ……………………………………. $438,100
Instructions
(a) Prepare the annual manufacturing budget for 2013, assuming that 4,000 kayaks will be produced.
(b) Prepare the flexible budget for manufacturing for the quarter ended March 31, 2013. Assume activity levels of 900, 1,000, and 1,050 units.
(c) Assuming the rotomolded line is treated as a profit center, prepare a flexible budget report for manufacturing for the quarter ended March 31, 2013, when 1,050 units were produced.
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