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THE UTEASE CORPORATION

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Question;THE UTEASE CORPORATION;The Utease Corporation has many;production plants across the U.S. 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;STANDARD;PRODUCTION COSTS;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;$1,800,000.00;Expected sales;activity: 20,000 units at $425.00 per unit;Desired ending;inventories: 10% of sales;ACTUAL;PRODUCTION COSTS;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;Units sold;21,500 units;(Inventory = 1,500);Unit selling;price;$420.00;Direct labor;hours worked;34,000hrs;Direct labor;costs;$3,094,000.00;Direct;materials purchased;50,000 pounds;Direct;materials costs;$1,000,000.00;Direct;materials used;50,000 pounds;Actual fixed;overhead;$1,080,000.00;Actual;variable overhead;$620,000.00;Actual selling;and administrative costs;$2,000,000.00;A. Prepare a production budget for the;coming year based on the available standards, expected sales, and desired;ending inventories.;B. Prepare a budgeted responsibility;income statement for the Bellingham plant for the coming year.;C. Find the direct labor variances.;Indicate if they are favorable or unfavorable and why they would be considered;as such.;D. Find the direct materials variances;(materials price variance and quantity variance);E.;Find;the total over- or under applied (both fixed and variable) overhead. Would cost;of goods sold be a larger or smaller expense item after the adjustment for;over- or under applied overhead?;F.;Calculate;the actual plant operating profit for the year;G. Use a flexible budget to explain the;difference between the budgeted operating profit and the actual operating profit;for the Bellingham plant for its first year of operation. What part of the;difference do you believe is the plant manager?s responsibility?;H. Assume Utease Corporation is planning;to change its evaluation of business operations in all plants from the profit;center format to the investment center format. If the average invested capital;at the Bellingham plant is $8,950,000, compute the return on investment (ROI);for the first year of operation. Use the DuPont method of evaluation to compute;the return on sales (ROS) and Capital turnover (CT) for the plant.;I.;Assume;that under the investment center evaluation plan the plant manager will be;awarded a bonus based on ROI. If the manager has the opportunity in the coming;year to invest in new equipment for $500,000 that will generate incremental;earnings of $75,000 per year, would the manager undertake the project? Why or why;not? What other evaluation tools could Utease use for their plants that might;be better?;J.;The;chief financial officer of Utease Corporation wants to include a charge in each;investment center?s income statement for corporate-wide administrative;expenses. Should the Bellingham plant manager?s annual bonus be based on plant;ROI after deducting the corporatewide administrative fee? Why or why not?

 

Paper#45040 | Written in 18-Jul-2015

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