Question

P 6–8: Coating Department

The coating department of a parts manufacturing department coats various parts with an antirust, zinc-based material. The parts to be processed are loaded into baskets; the baskets are passed through a coating machine that dips the parts into the zinc solution. The machine then heats the parts to ensure that the coating bonds properly. All parts being coated are assigned a cost for the coating department based on the number of hours the parts spend in the coating machine. Prior to the beginning of the year, cost categories are accumulated by department (including the coating department). These cost categories are classified as either fixed or variable and then a flexible budget for the department is constructed. Given an estimate of machine hours for the next year, the coating department’s projected cost per machine hour is computed.

  

Here are data for the last three operating years. Expected coating machine hours for 2017 are 16,000 hours.

COATING DEPARTMENT

Operating Data

	2014	2015	2016
Machine hours	12,500	8,400	15,200
Coating materials	$ 51,375	$ 34,440	$ 62,624
Engineering support	27,962	34,295	31,300
Maintenance	35,850	35,930	36,200
Occupancy costs (square footage)	27,502	28,904	27,105
Operator labor	115,750	78,372	147,288
Supervision	46,500	47,430	49,327
Utilities	12,875	8,820	16,112
Total costs	$317,814	$268,191	$369,956

Required:

1. Estimate the coating department’s flexible budget for 2017. Explicitly state and justify the assumptions used in deriving your estimates.

2. Calculate the coating department’s cost per machine hour for 2017.

  

Answer 1

Answer :

(a).

Estimate the coating department flexible budget
Particulars	2014	2015	2016
Coating material	4.11	4.1	4.12
Engineering support	2.24	4.08	2.06
Maintenance	2.87	4.28	2.38
Occupancy costs	2.2	3.44	1.78
Operator labor	9.26	9.33	9.69
Super vision	3.72	5.65	3.25
Utilities	1.03	1.05	1.06
Particulars	2014	2015	2016	Average	Random walk
Variable costs
Coating material	4.11	4.1	4.12	4.12	4.12
Operator labor	9.26	9.33	9.69	9.69	9.69
Utilities	1.03	1.05	1.06	1.06	1.06
Total variable costs	1.03	1.05	1.06	1.06	1.06
Fixed costs
Engineering support	27962	34295	31300	31186	31300
Maintenance	35850	35930	36200	35993	36200
Occupancy costs	27502	28904	27105	27837	27105
Super vision	46500	47430	49327	47752	49327
Total fixed cost	137814	146559	143932	142768	143932
Expected costs = 142768 + 14.59 per machine hr
Expected cost = 143932 + 14.87 per machine hr
(b). Calculation of coating department cost per machine
Particulars	Average	Random walk
Variable cost per machine hour	14.59	14.87
Expected machine hour	16000	16000
Total variable costs	233440	237920
Add : Foxed costs	142768	143932
Budgeted costs	376208	381852
Expected machine hour in 2017	16000	16000
Cost per hour in coating department	23.51	23.87