Tesla Motors assembles the fully electric Model S-85 automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is $58,800, which consists of: Direct materials $36,000 Direct manufacturing labor Variable manufacturing overhead $10,800 $12,000 Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard as- sembly time per vehicle is 20 hours. The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017, the budgeted normal capacity utilization is 3,000 vehicles per month. Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first three months of the year are: January February March Production Sales 3,200 2,000 2,400 2,900 3,800 3,200 Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption- costing income statements monthly, which include an adjustment for the production-volume variance oc- curring in that month. There are no variable cost variances or fixed overhead spending variances in the first three months of 2017. The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla S-85 vehicle.
Tesla Motors assembles the fully electric Model S-85 automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is $58,800, which consists of: Direct materials $36,000 Direct manufacturing labor Variable manufacturing overhead $10,800 $12,000 Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard as- sembly time per vehicle is 20 hours. The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017, the budgeted normal capacity utilization is 3,000 vehicles per month. Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first three months of the year are: January February March Production Sales 3,200 2,000 2,400 2,900 3,800 3,200 Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption- costing income statements monthly, which include an adjustment for the production-volume variance oc- curring in that month. There are no variable cost variances or fixed overhead spending variances in the first three months of 2017. The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla S-85 vehicle.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Question
How much would the use of variable costing change Holzhausen’s bonus each month if the same 0.25% figure were applied to variable-costing operating income?
Transcribed Image Text:Tesla Motors assembles the fully electric Model S-85
automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is
$58,800, which consists of:
Direct materials
$36,000
Direct manufacturing labor
Variable manufacturing overhead
$10,800
$12,000
Variable manufacturing overhead is allocated to vehicles on the basis of assembly time. The standard as-
sembly time per vehicle is 20 hours.
The Fremont plant is highly automated and has a practical capacity of 4,000 vehicles per month. The
budgeted monthly fixed manufacturing overhead is $45 million. Fixed manufacturing overhead is allocated
on the basis of the standard assembly time for the budgeted normal capacity utilization of the plant. For 2017,
the budgeted normal capacity utilization is 3,000 vehicles per month.
Transcribed Image Text:Tesla started production of the Model S-85 in 2017. The actual production and sales figures for the first
three months of the year are:
January
February
March
Production
Sales
3,200
2,000
2,400
2,900
3,800
3,200
Franz Holzhausen is SVP of Tesla and director of the Fremont plant. His compensation includes a bonus
that is 0.25% of monthly operating income, calculated using absorption costing. Tesla prepares absorption-
costing income statements monthly, which include an adjustment for the production-volume variance oc-
curring in that month. There are no variable cost variances or fixed overhead spending variances in the first
three months of 2017.
The Fremont plant is credited with revenue (net of marketing costs) of $96,000 for the sale of each Tesla
S-85 vehicle.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education