1. Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company’s budgeted costs:





Fixed Cost per Month

Cost per Car Washed



Cleaning supplies



$ 0.70



Electricity

$ 1,400

$ 0.10



Maintenance



$ 0.30



Wages and salaries

$ 4,700

$ 0.40



Depreciation

$ 8,300





Rent

$ 2,100





Administrative expenses

$ 1,800

$ 0.05




The company expects to charge customers an average of $5.90 per car washed. For November Auto Lavage had assumed that 8,000 cars would washed.

The actual revenues and expenses for November are given below:





Actual Data for 8,100 Cars



Sales

$ 49,300



Variable expenses





Cleaning supplies

6,075



Electricity

891



Maintenance

2,187



Wages and salaries

3,402



Administrative expenses

486



Fixed expenses





Electricity

1,450



Wages and salaries

4,700



Depreciation

8,300



Rent

2,100



Administrative expenses

1,745




Required: (25)

a. Prepare the budget for November.

b. Prepare the flexible budget variance report for November and indicate the flexible budget variance, sales volume variance and static-budget variance.

1. Oxford Concrete Inc. (OCI) processes and distributes various types of cement. The company buys quarried local rock, limestone, and clay from around the world and mixes, blends, and packages the processed cement for resale. OCI offers a large variety of cement types that it sells in one-kilogram bags to local retailers for small do-it-yourself jobs. The major cost of the cement is raw materials. However, the company’s predominantly automated mixing, blending, and packaging processes require a substantial amount of manufacturing overhead. The company uses relatively little direct labour.
Some of OCI’s cement mixtures are very popular and sell in large volumes, while a few of the recently introduced cement mixtures sell in very low volumes. OCI prices its cements at manufacturing cost plus a 25% markup, with some adjustments made to keep the company’s prices competitive.
For the coming year, OCI’s budget includes estimated manufacturing overhead cost of $4,400,000. OCI assigns manufacturing overhead to products on the basis of direct labour-hours. The expected direct labour cost totals $1,200,000, which represents 100,000 hours of direct labour time. Based on the sales budget and expected raw materials costs, the company will purchase and use $10,000,000 of raw materials (mostly quarried rock, limestone, and clay) during the year.
The expected costs for direct materials and direct labour for one-kilogram bags of two of the company’s cement products appear below:





Normal Portland

High Sulphate Resistance



Direct materials

$ 9.00

$ 5.80



Direct labour (0.02 hours per bag)

$ 0.24

$ 0.24




OCI’s controller believes that the company’s traditional costing system may be providing misleading cost information. To determine whether this is the case, the controller has prepared an analysis of the year’s expected manufacturing overhead costs, as shown in the following table:



Activity Cost Pool

Activity Measure

Expected Activity for the Year

Expected Cost for the Year



Purchasing

Purchase orders

4,000 orders

$ 1,120,000



Materials handling

Number of setups

2,000 setups

$ 386,000



Quality control

Number of batches

1,000 batches

$ 180,000



Mixing

Mixing hours

190,000 mixing hours

$ 2,090,000



Blending

Blending hours

64,000 blending hours

$ 384,000



Packaging

Packaging hours

48,000 packaging hours

$ 240,000













Total MOH cost





$ 4,400,000














Data regarding the expected production of Normal Portland and High Sulphate Resistance cement mixes are presented below:





Normal Portland

High Sulphate Resistance



Expected sales

160,000 kilograms

8,000 kilograms



Batch size

10,000 kilograms

500 kilograms



Setups

4 per batch

4 per batch



Purchase order size

20,000 kilograms

500 kilograms



Mixing time per 100 kilogram

3 mixing hours

3 mixing hours



Blending time per 100 kilogram

1 blending hour

1 blending hour



Packaging time per 100 kilogram

0.6 packaging hours

0.6 packaging hours





Required: (40)

a. Using direct labour-hours as the base for assigning manufacturing overhead cost to products, do the following:
i. Determine the predetermined overhead rate that will be used during the year.
ii. Determine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement.

b. Using ABC as the basis for assigning manufacturing overhead cost to products, do the following:
i. Determine the total amount of manufacturing overhead cost assigned to the Normal Portland cement and to the High Sulphate Resistance cement for the year.
ii. Using the data developed in 2( a ) above, compute the amount of manufacturing over-head cost per kilogram of the Normal Portland cement and the High Sulphate Resistance cement. Round all computations to the nearest whole cent.
iii. Determine the unit product cost of one kilogram of the Normal Portland cement and one kilogram of the High Sulphate Resistance cement.

c. Write a brief memo to the president of OCI explaining what you found in (a) and (b) above, and discuss the implications to the company of using direct labour as the base for assigning manufacturing overhead cost to products.

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