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Corfe Co is a business which manufactures computer laptop batteries and it has developed a new battery which has a longer usage time than batteries currently available in laptops. The selling price of the battery is forecast to be $45.
The maximum production capacity of Corfe Co is 262,500 units. The company’s management accountant is currently preparing an annual flexible budget and has collected the following information so far:
Production (units) 185,000 200,000 225,000
Material costs 740,000 800,000 900,000
Labour costs 1,017,500 1,100,000 1,237,500
Fixed costs 750,000 750,000 750,000
In addition to the above costs, the management accountant estimates that for each increment of 50,000 units produced, one supervisor will need to be employed. A supervisor’s annual salary is $35,000.
The production manager does not understand why the flexible budgets have been produced as he has always used a fixed budget previously
Solution:
Activity level 0.8*262,500 units = 210,000 units
material & labor costs are both variables , material is $4 and labor cost per unit $5.5
total variable costs ($9.50 *210,000) = $1,995,000
fixed cost $750,000
supervision = $175,000total annual budget costs = 1,995,000+175,000+750,000 = $2,920,000.
Please, just a little question supervision of $175,000. The kaplan did not detail it and it stated that 5 supervisors will be needed for the production level of 210,000 units.
Could you assist please?
Thanks in advance
The question implies that another supervisor is needed every time production increases by 50,000. So, if exactly 200,000 units were being made, 4 supervisors are needed.
If 210,000 are to be made, another supervisor is needed, ie 5 in total (and that could take production up to 250,000 units).
The wording about how many supervisors are needed could be a little clearer.
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