I’m working on a accounting project and need guidance to help me study.
Mini-Practice Set
Budgeting and Standard Costs
In this project you will apply the techniques and principles of budgeting and standard costs to the operations of Speedway Toys, Inc. You will prepare budgets for the year ended December 31, 20XX, determine standards costs per hour and per unit of product, and compute variances for the month of January 20XX.
Company’s Operations
Speedway Toys, Inc., manufactures a battery-powered toy car that is sold in toy stores and department stores. In the firm’s manufacturing process, highly skilled employees operate molding machines that form semi-liquid plastic into car bodies. Assembly personnel insert a battery driven motor assembly, which the firm purchases from a subcontractor, into the molded car body. Then the assembly personnel add wheels and axles (also purchased from a subcontract) and decorative trim to complete the car.
Preparation Budgets
SALES BUDGET
The sales manager and her staff have analyzed sales records and other data and forecast that 61,000 cars will be sold in 20XX. Standard costs are to be based on this volume of production, which should require 30,000 direct labor hours.
PRODUCTION BUDGET
Speedway Toys, Inc., expects to begin 20XX with an inventory of 7,000 completed toy cars. The company would like to reduce its finished goods inventory of toy cars at the end of 20XX by 1,000 cars to 6,000 cars.
STANDARDS FOR DIRECT MATERIALS AND DIRECT LABOR
Speedway Toys, Inc., has established the following standards for direct materials and direct labor, which should be attainable under normal circumstances. Later you will be instructed to compute the standard cost per hour of direct labor and per unit of product. Data related to direct materials follow:
Material Quantity Cost per Unit Cost per Car
Plastic 1.5 lb per car $3.40 per lb $5.10
Motor assembly 1 motor per car $6.50 per motor $6.50
Wheels and axles 1 set per car $0.40 per set $0.40
Total $12.00
NOTE: Paint and stickers for decorative trim are considered part of indirect materials.
Data related to direct labor follow:
Job Title Hours per Car Rate per Car Cost per Car
Molders 0.2 $15.00 $3.00
Assemblers 0.3 $18.00 $5.40
Total 0.5 $8.40
MATERIALS BUDGET
Beginning inventories of raw materials on January 1, 20XX, are expected to be as follows:
Material Amount
Plastic 5,500 lb
Motors 4,000 motors
Wheels and axles 2,500 sets
Speedway Toys, Inc., would like to have enough raw materials on hand at the end of the year to equal the following percentages of 20XX budgeted requirements:
Material Percentage of 20XX Budget
Plastic 5%
Motors 10%
Wheels and axles 1%
MANUFACTURING OVERHEAD BUDGET
The following information related to variable and fixed manufacturing overhead costs for 20XX has been assembled. Later you will be directed to complete the manufacturing overhead budget and compute the standard overhead cost per hour and per unit.
SPEEDWAY TOYS, INC.
Analysis of Fixed and Variable Overhead Costs
Year Ended December 31, 20XX
VARIABLE OVERHEAD PER HOUR FIXED OVERHEAD
Controllable Costs
Indirect Materials $0.04 —-
Indirect Labor 2.00 $60,000
Payroll Taxes and Fringe Benefits 2.80 9,000
Utilities 0.32 12,000
Repairs and Miscellaneous 0.34 9,600
Non-controllable Costs
Depreciation —- 42,000
Insurance —- 12,000
Total Manufacturing Overhead $5.50 $144,600
STANDARD COST ACCOUNTING PROCEDURES TO BE COMPLETED
During January 20XX, Speedway Toys, Inc., manufactured 4,800 toy cars. The costs of materials, labor, and overhead were as follows:
Material Amount
Plastic 7,050 lb at $3.60 per lb
Motor 4,975 motors at $6.24 per motor
Wheels and axles 4,880 sets at $.425 per set
Direct Labor Hours Rate
Molders 930 hr $15.20 per hour
Assemblers 1510 hr $18.40 per hour
Overhead Amount
Variable $13,120
Fixed $12,050
You are to prepare the following for the month of January 20XX. For all variances computed, show whether they are favorable or unfavorable.
B-1 Prepare a summary of materials costs.
B-2 Prepare a summary of labor costs.
B-3 Compute the quantity and price variances for each material.
B-4 Compute the efficiency and rate variance for each type of labor.
B-5 Compute the total manufacturing overhead variance. Analyze the total overhead variance, using the three-variance analysis method.
B-6 Prepare entries in general journal form to record each of the following (omit explanations):
a. Charge the raw materials to production and record the materials variances.
b. Charge the labor to production and record the labor variances.
c. Charge the manufacturing overhead to production and record the overhead variances.
d. Transfer the completed units to finished goods.
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