Question

Ultease Corporation has many production plants across the midwestern United States. A newly opened plant, the Bellingham plant, produces and sells one product. The plant is treated, for responsibility accounting purposes, as a profit center. The unit standard costs for a production unit, with overhead applied based on direct labor hours, are as follows.

Manufacturing costs (per unit based on expected activity of 24,000 units or 36,000 direct labor hours):

Direct materials (2 pounds at $20)	$	40.00
Direct labor (1.5 hours at $90)		135.00
Variable overhead (1.5 hours at $20)		30.00
Fixed overhead (1.5 hours at $30)		45.00
Standard cost per unit	$	250.00
Budgeted selling and administrative costs:
Variable	$	5		per unit
Fixed	$	1,800,000

Expected sales activity: 20,000 units at $425.00 per unit

Desired ending inventories: 10% of sales

Assume this is the first year of operations for the Bellingham plant. During the year, the company had the following activity

Units produced		23,000
Units sold		21,500
Unit selling price	$	420
Direct labor hours worked		34,000
Direct labor costs	$	3,094,000
Direct materials purchased		50,000		pounds
Direct materials costs	$	1,000,000
Direct materials used		50,000		pounds
Actual fixed overhead	$	1,080,000
Actual variable overhead	$	620,000
Actual selling and administrative costs	$	2,000,000

  

In addition, all over- or underapplied overhead and all product cost variances are adjusted to cost of goods sold.

b. Prepare a budgeted responsibility income statement for the Bellingham plant for the coming year

Sales revenue _________

Cost of Goods Sold ________

Gross Profit _______

Operating Expenses

Fixed Selling and Admin expenses __________

Variable Selling and Admin Expenses _________

Cost of goods sold _______

Salaries Expenses _________

Total Operating Expenses _________

Operating Income______________

Answer 1

Budgeted Income Statement for Responsibility

Number of Units Sold		20,000
Selling Price /Units	425		8,500,000
Direct MAterial (2 pound at $20 )	40	800,000
Direct Labour (1.5 Hours at $ 90 )	135	2,700,000
Variable Overheads (1.5 Hours at $20 )	30	600,000
Fixed Overhead (1.5 Hours at $30)	45	900,000
Cost of Goods Sold ($250* 20,000 Units)			5,000,000
Gross Profit (revenue - COGS )			3,500,000
Less: Selling Expenses ($5 * 20,000 Units )	5	100,000
Administrative Expenses		1,800,000	1,900,000
Net Income			1,600,000

Net Income is calculated based on the available figures, by deducting Gross Profit* with other expenses.

Gross Profit = Sales - Cost of goods sold.