Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 6, Problem 6.36P
Budgeted costs, Kaizen improvements environmental costs. US Apparel (USA) manufactures plain white and solid-colored T-shirts. Budgeted inputs include the following:
*For colored T-shirts only
Budgeted sales and selling price per unit are as follows:
Budgeted Sales | Selling Price per Unit | |
White T-shirts | 10,000 units | $12 per T-shirt |
Colored T-shirts | 50,000 units | $15 per T-shirt |
USA has the opportunity to switch from using the dye it currently uses to using an environmentally friendly dye that costs $1.25 per ounce. The company would still need 4 ounces of dye per shirt. USA is reluctant to change because of the increase in costs (and decrease in profit), but the Environmental Protection Agency has threatened to fine the company $130,000 if it continues to use the harmful but less expensive dye.
- 1. Given the preceding information, would USA be better off financially by switching to the environmentally friendly dye? (Assume all other costs would remain the same.)
- 2. Assume USA chooses to be environmentally responsible regardless of cost, and it switches to the new dye. The production manager suggests trying Kaizen costing. If USA can reduce fabric and labor costs each by 1% per month on all the shirts it manufactures, by how much will overall costs decrease at the end of 12 months? (Round to the nearest dollar for calculating cost reductions.)
- 3. Refer to requirement 2. How could the reduction in material and labor costs be accomplished? Are there any problems with this plan?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Scholar Suppliers manufactures backpacks for students. The backpacks come in two sizes: Small, and Large. Scholar Suppliers anticipates the following sales volumes and prices for the coming period:
Size
Sales Volume
Selling Price
Small
3,000 backpacks
$25 each
Large
6,000 backpacks
$75 each
What is the budgeted level of revenue for the coming period?
Juda manufactures coffee mugs that it sells to other companies for customizing with their
own logos. Juda prepares flexible budgets and uses a standard cost system to control
manufacturing costs. The standard unit cost of a coffee mug is based on static budget
volume of 60,100 coffee mugs per month:
Actual cost and production information for July 2024 follows:
A (Click the icon to view actual cost and production information.)
Read the requirements.
E (Click the icon to view the cost data.)
Requirement 1. Compute the cost and efficiency variances for direct materials and direct labor.
Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct labor, and identify whether each variance is favorable (F) or
unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity: FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)
Formula
Variance
Direct materials cost variance
Direct labor cost variance
%3D
KK Limited is a company that manufactures made in Ghana clothes for the fashion industry. The fashion industry in Ghana is fast moving and consumer demand can change quickly due to the emergence of new trends. KK Limited manufactures three items of clothing: the GEM A, the GEM B and the GEM C using the same resources but in different amounts.
Budgeted information per unit is as follows:
GEM A
GEM B
GEM C
GHS
GHS
GHS
Selling price
250
40
100
Direct materials (GHS20 per cm)
100
10
30
Direct labour (GHS12 per hour)
36
12
27
Variable overheads (GHS3 per machine hours)
9
3
6.75
Total fixed costs are GHS300,000 per month.
Included in the original budget constructed at the start of the year, was the sales
demand for the month of March as shown below:
GEM A
GEM B
GEM C
Demand in March (units)
2,000
6,000
4,000
After the original budget had been constructed, items of clothing GEM A, GEM B and GEM C…
Chapter 6 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 6 - What are the four elements of the budgeting cycle?Ch. 6 - Define master budget.Ch. 6 - Strategy, plans, and budgets are unrelated to ore...Ch. 6 - Budgeted performance is a better criterion than...Ch. 6 - Production managers and marketing managers are...Ch. 6 - Budgets meet the cost-benefit test. They force...Ch. 6 - Define rolling budget. Give an example.Ch. 6 - Outline the steps in preparing an operating...Ch. 6 - The sales forecast is the cornerstone for...Ch. 6 - Prob. 6.10Q
Ch. 6 - Define Kaizen budgeting.Ch. 6 - Prob. 6.12QCh. 6 - Explain how the choice of the type of...Ch. 6 - What are some additional considerations that arise...Ch. 6 - Prob. 6.15QCh. 6 - Master budget. Which of the following statements...Ch. 6 - Operating and financial budgets. Which of the...Ch. 6 - Production budget. Superior Industries sales...Ch. 6 - Responsibility centers. Elmhurst Corporation is...Ch. 6 - Cash budget. Mary Jacobs, the controller of the...Ch. 6 - Sales budget, service setting. In 2017 Hart Sons,...Ch. 6 - Sales and production budget. The Coby Company...Ch. 6 - Direct material budget. Dawson Co. produces wine....Ch. 6 - Material purchases budget. The McGrath Company has...Ch. 6 - Revenues, production, and purchases budgets. The...Ch. 6 - Revenues and production budget. Saphire, Inc.,...Ch. 6 - Budgeting; direct material usage, manufacturing...Ch. 6 - Budgeting, service company. Ever Clean Company...Ch. 6 - Budgets for production and direct manufacturing...Ch. 6 - Activity-based budgeting. The Jerico store of...Ch. 6 - Kaizen approach to activity-based budgeting...Ch. 6 - Responsibility and controllability. Consider each...Ch. 6 - Responsibility, controllability, and stretch...Ch. 6 - Cash flow analysis, sensitivity analysis....Ch. 6 - Budget schedules for a manufacturer. Hale...Ch. 6 - Budgeted costs, Kaizen improvements environmental...Ch. 6 - Revenue and production budgets. (CPA, adapted) The...Ch. 6 - Budgeted income statement. (CMA, adapted) Smart...Ch. 6 - Prob. 6.39PCh. 6 - Comprehensive problem with ABC costing. Animal...Ch. 6 - Cash budget (continuation of 6-40). Refer to the...Ch. 6 - Comprehensive operating budget. Skulas, Inc.,...Ch. 6 - Cash budgeting, budgeted balance sheet....Ch. 6 - Comprehensive problem; ABC manufacturing, two...Ch. 6 - Cash budget. (Continuation of 6-44) (Appendix)...Ch. 6 - Budgeting and ethics. Jayzee Company manufactures...Ch. 6 - Kaizen budgeting for carbon emissions. Apex...Ch. 6 - Comprehensive budgeting problem; activity-based...
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.Similar questions
- Finch Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products follow. Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a × b) Variable costs (a × c) Contribution margin Fixed costs Net income Req A Req B Margin of safety Req C1 Skin Cream 112,000 Skin Cream Relevant Information Required: a. Determine the margin of safety as a percentage for each product. b. Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. c1. For each product, determine the percentage change in net income that results from the 20 percent increase in sales. c2. Which product has the highest operating leverage? d. Assuming that management is pessimistic and risk averse, which product should…arrow_forwardEcoSacks manufactures cloth shopping bags. The controller is preparing a budget for the coming year and asks for your assistance. The following costs and other data apply to bag production. Direct materials per bag 1.0 yard cotton at $4 per yard 0.2 yards canvas finish at $12 per yard Direct labor per bag 0.5 hour at $18 per hour Overhead per bag Indirect labor $ 0.60 Indirect materials 0.20 Power 0.40 Equipment costs 1.30 Building occupancy 0.90 Total overhead per unit $ 3.40 You learn that equipment costs and building occupancy are fixed and are based on a normal production of 600,000 units per year. Other overhead costs are variable. Plant capacity is sufficient to produce 750,000 units per year. Labor costs per hour are not expected to change during the year. However, the cotton supplier has informed EcoSacks that it will impose a 20 percent price increase at the start of the coming budget period. No…arrow_forwardFortin Limited produces and sells a single product, a wearable LED light for runners and cyclists. The analytics group at Fortin Limited has developed the following estimates for unit sales in the upcoming year. First Quarter Second Quarter Third Quarter Fourth Quarter Budgeted unit sales 24,000 22, 500 21,000 22,000 Each light requires two separate LED bulbs, each of which costs $2. To ensure enough LED bulbs are on hand to support short-term production if a problem arises with the sole supplier, Fortin Limited maintains an ending inventory of 10% of the following quarter's production needs. A total of 4, 800 LED bulbs will be on hand to start the first quarter of the upcoming fiscal year. Management expects sales in the fourth quarter of the upcoming year to be the same as the first quarter of the following year. Required: Prepare a direct materials purchases budget for LED bulbs, by quarter and in total, for the upcoming fiscal year. At the bottom of your budget, show the dollar…arrow_forward
- Fortin Limited produces and sells a single product, a wearable LED light for runners and cyclists. The analytics group at Fortin Limited has developed the following estimates for unit sales in the upcoming year. Budgeted unit sales First Quarter 25,400 Second Quarter 22,000 Third Quarter 20,100 Each light requires two separate LED bulbs, each of which costs $2. To ensure enough LED bulbs are on hand to support short-term production if a problem arises with the sole supplier, Fortin Limited maintains an ending inventory of 10% of the following quarter's production needs. A total of 5.600 LED bulbs will be on hand to start the first quarter of the upcoming fiscal year. Management expects sales in the fourth quarter of the upcoming year to be the same as the first quarter of the following year. Required: Prepare a direct materials purchases budget for LED bulbs, by quarter and in total, for the upcoming fiscal year. At the bottom of your budget, show the dollar amount of purchases for…arrow_forwardRing Company makes two models of phones - Blue and Yellow. Blue is a basic model and Yellow has more advanced features. Data on the two phones is as follows: Blue Yellow Expected production 50,000 phones 150,000 phones Direct materials and Direct labour costs $25 $40 Ring Company's accountant prepares the following budget that she plans to use to prepare an activity based analysis the costs of Blue and Yellow: \table[[, Blue, Yellow, Budgeted Cost],[,,,], [ Equipment setup, 100 setups, 60 setups,$88,000 ง Required: 1. "Calculate the manufacturing overhead allocation rate for each activity using ABC 2. Calculate the cost of the Blue Phone." 3. If the company wants a markup on cost of 75 percent calculate the selling price of the Blue Phonearrow_forwardSmith Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Smith allocates overhead based on yards of dired (Click the icon to view the selected data.) Read the requirements. Requirement 1. Prepare a flexible budget based on the actual number of recliners sold. (Round budget amounts per unit to the nearest cent.) Smith Recliners Flexible Budget Actual Units (Recliners) Sales Revenue Variable Manufacturing Costs: Direct Materials Direct Labor Variable Overhead Fixed Manufacturing Costs: Fixed Overhead Total Cost of Goods Sold Gross Profit Budget Amounts per Unit Direct materials cost variance W Direct labor cost variance = Direct materials efficiency variance Direct labor efficiency variance . Formula = Variance Formula Data table Sales Variance Variable Manufacturing Costs: Direct Materials (6,150 yds @ $8.60/yd.) (6,300 yds @ $8.40/yd.) (10,250 DLHr@ $11.20/DLHr) (9,850 DLHr@ $11.30/DLHr) Variable Overhead (6,150 yds. @ $5.10/yd.) (6,300…arrow_forward
- Revenues, production, and purchases budgets. The Yucatan Co. in Mexico has a division that manufactures bicycles. Its budgeted sales for Model XG in 2018 are 95,000 units. Yucatan’s target ending inventory is 7,000 units, and its beginning inventory is 11,000 units. The company’s budgeted selling price to its distributors and dealers is 3,500 pesos per bicycle. Yucatan buys all its wheels from an outside supplier. No defective wheels are accepted. Yucatan’s needs for extra wheels for replacement parts are ordered by a separate division of the company. The company’s target ending inventory is 14,000 wheels, and its beginning inventory is 16,000 wheels. The budgeted purchase price is 400 pesos per wheel. Required: Compute the budgeted revenues in pesos. Compute the number of bicycles that Yucatan should produce. Compute the budgeted purchases of wheels in units and in pesos. What actions can Yucatan’s managers take to reduce budgeted purchasing costs of wheels assuming the same budgeted…arrow_forwardThe following table depicts the budgeted sales volume and per unit costs and profits for an English manufacturer (Toys Ltd.) of two different children’s toys, both of which are produced in the same factory: Calculate the contribution per unit and total contribution for each of the two products. Since product B is unprofitable, calculate its break-even output i.e. sales quantity. Should management discontinue its production? Explain and justify your answerarrow_forwardStenback manufactures coffee mugs that it sells to other companies for customizing with their own logos. Stenback prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60,200 coffee mugs per month: Direct Materials (0.2 lbs @ $0.25 per lb) $0.05 Direct Labor (3 minutes @ $0.10 per minute) 0.30 Manufacturing Overhead: Variable (3 minutes @ $0.06 per minute) $0.18 Fixed (3 minutes @ $0.13 per minute) 0.39 0.57 Total Cost per Coffee Mug $0.92 a.There were no beginning or ending inventory balances. All expenditures were on account. b.Actual production and sales were 62,900 coffee mugs. c. Actual direct materials usage was 10,000 lbs. at an actual cost of $0.17 per lb. d. Actual direct labor usage was 202,000 minutes at a total cost of $24,240. e. Actual overhead cost was $10,100 variable and $30,800 fixed. f. Selling and administrative costs were $131,000. Select the…arrow_forward
- W Corp. in Hong Kong, SAR, China, manufactures tablets, laptops and desktop PCs. Wongtien currently operates a standard absorption costing system. Budgeted information for next year is given below (currency in one thousand Hong Kong Dollars, HK$000): Products Tablets Laptops Desktop PCs Total Sales revenue 3,640 12,480 9,880 26,000 Direct material 800 2,800 2,200 5,800 Direct labor 300 1,200 800 2,300 Fixed production overheads 1,456 4,992 3,952 10,400 Gross profit 1,084 3,488 2,928 7,500 Fixed production overheads are currently absorbed based on a percentage of sales revenue. W company is considering changing to an activity-based costing system. The main activities and their associated cost drivers and overhead cost have been identified as follows: Activity Cost driver…arrow_forwardBesteLippe (Pty) Ltd produces two types of lip balm, namely Healing and Organic and uses an absorption costing system. BesteLippe budgeted to produce and sell 1 800 000 units of Healing and 600 000 units of Organic for the financial year starting on 1 May 2024. The other budgeted information is as follows: Details Selling price Direct raw material Direct Labour Variable overhead costs Selling and distribution costs (70% fixed and 30% variable) Healing Organic R per unit R per unit 40,00 45,00 14,25 20,00 5,00 8,00 4,00 6,00 2,50 4,00 Fixed manufacturing overheads and General administrative costs are R5 000 000 and R11 000 000 respectively for the financial year starting on 1 May 2024. The total budgeted fixed cost to be used in the break-even unit calculation for the financial year starting on 1 May 2024 is: Select one: a. R16 000 000 b. R20 830 000 C. R18 070 000 d. None of the options e. R22 900 000arrow_forwardThe following table depicts the budgeted sales volume and per unit costs and profits for an English manufacturer (Toys Ltd.) of two different children's toys, both of which are produced in the same factory: IB BSc SS 2020 Product A B Budgeted sales (units) 2500 3000 £ Sales price per unit 40 39 Material 12 6 Labour 12 20 Variable overheads 5 4 Fixed overhead per unit 10 Total cost per unit Profit per unit 35 40 5 -1 (a) Calculate the contribution per unit and total contribution for each of the two products. Since product B is unprofitable, calculate its break-even output i.e. sales quantity. Should management discontinue its production? Explain and justify your answer. (b) packaging machine. For a total investment of £10,000, Fixed Overhead Cost can be reduced by Consider Toys Ltd. again. Assume that the production manager is considering a new £5,000 and the per unit cost of material and labor can both be reduced by 10%, for both products. Calculate the impact of such a scheme on total…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
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
Responsibility Accounting| Responsibility Centers and Segments| US CMA Part 1| US CMA course; Master Budget and Responsibility Accounting-Intro to Managerial Accounting- Su. 2013-Prof. Gershberg; Author: Mera Skill; Rutgers Accounting Web;https://www.youtube.com/watch?v=SYQ4u1BP24g;License: Standard YouTube License, CC-BY