Question

# Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has...

Elliott Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Elliott Engines has a very simple production process and product line and uses a single plantwide factory overhead rate to allocate overhead to the three products. The factory overhead rate is based on direct labor hours. Information about the three products for 20Y2 is as follows:

 Budgeted Volume (Units) Direct Labor Hours Per Unit Price Per Unit Direct Materials Per Unit Pistons 7,000 0.30 \$35 \$17 Valves 22,000 0.15 9 3 Cams 4,000 0.20 47 20

The estimated direct labor rate is \$20 per direct labor hour. Beginning and ending inventories are negligible and are, thus, assumed to be zero. The budgeted factory overhead for Elliott Engines is \$223,200.

If required, round all per unit answers to the nearest cent.

a. Determine the plantwide factory overhead rate.
\$ per dlh

b. Determine the factory overhead and direct labor cost per unit for each product.

 Direct Labor Hours Per Unit Factory Overhead Cost Per Unit Direct Labor Cost Per Unit Pistons dlh \$ \$ Valves dlh \$ \$ Cams dlh \$ \$

c. Use the information above to construct a budgeted gross profit report by product line for the year ended December 31, 20Y2. Include the gross profit as a percent of sales in the last line of your report, rounded to one decimal place. Enter all amounts as positive numbers, except for a negative gross profit/gross profit percentage of sales.

 Elliot Engines Inc. Product Line Budgeted Gross Profit Reports For the Year Ended December 31, 20Y2 Pistons Valves Cams \$ \$ \$ Product Costs \$ \$ \$ Total Product Costs \$ \$ \$ Gross profit \$ \$ \$ Gross profit percentage of sales % % %

d. What does the report in (c) indicate to you?

Valves have the   gross profit as a percent of sales. Valves may require a   price or   cost to manufacture in order to achieve the same profitability as the other two products.

a. Budgeted direct labor hours = 7,000 x 0.30 + 22,000 x 0.15 + 4,000 x 0.20 = 6,200

Plantwide factory overhead rate = Budgeted Factory Overhead / Budgeted Direct Labor Hours = \$ 223,200 / 6,200 = \$ 36 per direct labor hour.

b.

 Direct Labor Hours per Unit Factory Overhead Cost per Unit Direct Labor Cost per Unit Pistons 0.30 dlh \$ 10.80 \$ 6.00 Valves 0.15 dlh 5.40 3.00 Cams 0.20 dlh 7.20 4.00

c.

 Elliot Engines Inc. Product Line Budgeted Gross Profit Reports For the year ended December 31, 20Y2 Pistons Valves Cams \$ \$ \$ Budgeted Sales Revenue \$ 245,000 \$ 198,000 \$ 188,000 Product Costs Direct Materials 119,000 66,000 80,000 Direct Labor 42,000 66,000 16,000 Factory Overhead 75,600 118,800 28,800 Total Product Costs 236,600 250,800 124,800 Gross Profit 8,400 (52,800) 63,200 Gross Profit Percentage to Sales 3.43 % ( 26.67 % ) 33.62 %

d. Valves have a negative gross profit as a percencent of sales. Valves may require a higher price or lower cost to manufacture in order to achieve the same profitability as the other two produts.