Accounting -Donald’s Engine Company manufactures part TE456 used in several of its engine models

| January 30, 2017

Question
1.Donald’s Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:

Direct materials $ 20,000

Direct labor 5,000

Variable overhead costs 15,000

Fixed overhead costs 10,000

Total costs $50,000

The maximum price that Donald’s Engine Company should be willing to pay the outside supplier is?

2.Willis Corporation manufactures industrial-sized gas furnaces and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company’s manufacturing overhead data:

Budgeted output units 30,000 units

Budgeted machine-hours 10,000 hours

Budgeted variable manufacturing overhead costs for 30,000 units $322,500

Actual output units produced 44,000 units

Actual machine-hours used 14,400 hours

Actual variable manufacturing overhead costs $484,000

What is the budgeted variable overhead cost rate per output unit?

3.Meale Company makes a household appliance with model number X500. The goal for 2012 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2011 to 2012. The following additional data are available for 2011 and 2012:

2011 2012

Units of X500 produced and sold 10,000 11,000

Selling price $100 $95

Direct materials (square feet) 30,000 29,000

Direct material costs per square foot $10 $11

Manufacturing capacity for X500 (units) 12,500 12,000

Total conversion costs $250,000 $240,000

Conversion costs per unit of capacity $20 $20

What is operating income for 2011?

What is operating income for 2012?

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