Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel and an alloy that allows the fitting to be used under extreme conditions. The following data apply to the production of the fittings. Direct materials per unit 3 pounds of steel at $0.55 per pound 0.5 pounds of alloy at $1.90 per pound Direct labor per unit 0.02 hours at $30 per hour Overhead per unit Indirect materials $0.60 Indirect labor Utilities 0.75 0.55 Plant and equipment depreciation Miscellaneous 0.90 0.70 Total overhead per unit $3.50 The plant and equipment depreciation and miscellaneous costs are fixed and are based on production of 250,000 units annually. All other costs are variable. Plant capacity is 300,000 units annually. All other overhead costs are variable. The following are forecast for year 2. Contract negotiations with the union are expected to lead to an increase in hourly direct labor costs of 4 percent, mostly in the form of additional benefits. Commodity prices, including steel, are expected to decline by 10 percent due to the economic slowdown. Alloy prices are expected to remain constant. Plant and equipment depreciation costs are expected to increase by 6 percent. All other unit overhead costs are expected to remain constant. Haggstrom expects to sell 290,000 units in year 2. The current inventory of fittings is 20,000 units, and management would like to see a reduction of inventory of 10,000 units by the end of the year 2. Steel and alloy inventories will not change. Sales are approximately uniform over the year. Required: Prepare a production budget and estimate the materials, labor, and overhead costs for year 2.
Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel and an alloy that allows the fitting to be used under extreme conditions. The following data apply to the production of the fittings. Direct materials per unit 3 pounds of steel at $0.55 per pound 0.5 pounds of alloy at $1.90 per pound Direct labor per unit 0.02 hours at $30 per hour Overhead per unit Indirect materials $0.60 Indirect labor Utilities 0.75 0.55 Plant and equipment depreciation Miscellaneous 0.90 0.70 Total overhead per unit $3.50 The plant and equipment depreciation and miscellaneous costs are fixed and are based on production of 250,000 units annually. All other costs are variable. Plant capacity is 300,000 units annually. All other overhead costs are variable. The following are forecast for year 2. Contract negotiations with the union are expected to lead to an increase in hourly direct labor costs of 4 percent, mostly in the form of additional benefits. Commodity prices, including steel, are expected to decline by 10 percent due to the economic slowdown. Alloy prices are expected to remain constant. Plant and equipment depreciation costs are expected to increase by 6 percent. All other unit overhead costs are expected to remain constant. Haggstrom expects to sell 290,000 units in year 2. The current inventory of fittings is 20,000 units, and management would like to see a reduction of inventory of 10,000 units by the end of the year 2. Steel and alloy inventories will not change. Sales are approximately uniform over the year. Required: Prepare a production budget and estimate the materials, labor, and overhead costs for year 2.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Haggstrom, Inc., manufactures steel fittings. Each fitting requires both steel and an alloy that allows the fitting to be used under
extreme conditions. The following data apply to the production of the fittings.
Direct materials per unit
3 pounds of steel at $0.55 per pound
0.5 pounds of alloy at $1.90 per pound
Direct labor per unit
0.02 hours at $30 per hour
Overhead per unit
Indirect materials
Indirect labor
Utilities
Plant and equipment depreciation
Miscellaneous
$0.60
0.75
0.55
0.90
0.70
Total overhead per unit
$3.50
The plant and equipment depreciation and miscellaneous costs are fixed and are based on production of 250,000 units annually. All
other costs are variable. Plant capacity is 300,000 units annually. All other overhead costs are variable.
The following are forecast for year 2. Contract negotiations with the union are expected to lead to an increase in hourly direct labor
costs of 4 percent, mostly in the form of additional benefits. Commodity prices, including steel, are expected to decline by 10 percent
due to the economic slowdown. Alloy prices are expected to remain constant. Plant and equipment depreciation costs are expected to
increase by 6 percent. All other unit overhead costs are expected to remain constant.
Haggstrom expects to sell 290,000 units in year 2. The current inventory of fittings is 20,000 units, and management would like to see
a reduction of inventory of 10,000 units by the end of the year 2. Steel and alloy inventories will not change. Sales are approximately
uniform over the year.
Required:
Prepare a production budget and estimate the materials, labor, and overhead costs for year 2.
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