[mat10]

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.

[mat10]

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.

[Curlyben]

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[ma0641]

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