Maurice Tutor
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CASES
Cost data for multiple purposes: Safety Auto Accessories. Safety Auto Accessories manufactures an automobile safety seat for children that it sells through several retail chains. Safety Auto makes sales exclusively within its five-state region in the Midwest. The cost of manufacturing and marketing children’s automobile safety seats at the company’s forecasted volume of 15,000 units per month follows:
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|
Variable Materials .......................................................................................................................................... |
$300,000 |
|
Variable Labor ................................................................................................................................................ |
150,000 |
|
Variable Overhead.......................................................................................................................................... |
30,000 |
|
Fixed Overhead .............................................................................................................................................. |
180,200 |
|
Total Manufacturing Costs ...................................................................................................................... |
$660,200 |
|
Variable Nonmanufacturing Costs.............................................................................................................. |
$ 75,000 |
|
Fixed Nonmanufacturing Costs................................................................................................................... |
105,000 |
|
Total Nonmanufacturing Costs............................................................................................................... |
$180,000 |
|
Total Costs .................................................................................................................................................. |
$840,200 |
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Unless otherwise stated, you should assume a regular selling price of $70 per unit. Ignore income taxes and other costs the problem does not mention.
Early in July, the senior management of Safety Auto Accessories met to evaluate the firm on performance for the first half of the year. The following exchange ensued.
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Bob W ilson (p r esident): ‘‘Our performance for the first half of this year leaves much to be desired. Despite higher unit sales than forecast, our actual profits are lower than what we expected.’’
Sam B r own (sales manager): ‘‘I suspect production needs to shape up’’ (he said smugly). ‘‘We in sales have pursued an aggressive marketing strategy and the three- quarters of a million sales revenue higher than forecast is proof enough of our improved performance.’’
Linda Lampman (p r oduction manager): ‘‘Wait a minute, now! We managed to bring down unit costs from $44.00 to $43.00 with no help from sales, I must add! What’s the use of production plans when sales can change them anytime it likes? In February, Sam wanted a rush order for 4,000. In March, it was 8,000 units. Then in April he said to hold off on production; then in June he wanted 6,000. You know what I think. ... ’’
W ilson: ‘‘Hold on, now! I refuse to let this degenerate into a witch hunt. We have to examine this problem with more objectivity.’’ (He turned to his assistant, who had been quietly taking notes.) ‘‘Do you have any ideas, Smith?’’
Suppose you are Smith. Write a report to the president analyzing the company’s per- formance. Include a comparison of the actual results to the flexible budget and to the master budget. You know that planned production and sales for each month of the year is 15,000 units per month. You also know that 108,000 units were produced and sold in the first six months of this year, and the income statement for the first six months was as follows:
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Sales Revenue .............................................................................................................. |
 |
$7,020,000 |
|
Manufacturing Costs: |
 |  |
|
Variable Materials ................................................................................................... |
$2,160,000 |
 |
|
Variable Labor.......................................................................................................... |
1,134,000 |
 |
|
Variable Overhead ................................................................................................... |
324,000 |
 |
|
Fixed Overhead ........................................................................................................ |
1,026,000 |
4,644,000 |
|
Gross Margin ................................................................................................................. |
 |
$2,376,000 |
|
Marketing Costs: |
 |  |
|
Variable Marketing.................................................................................................. |
$ 648,000 |
 |
|
Fixed Marketing....................................................................................................... |
650,000 |
1,298,000 |
|
Operating Profit........................................................................................................... |
 |
$1,078,000 Â |