Chapter 9 - Discussion Problems

Chapter 9 - Discussion Problems - Chapter9DiscussionProblems

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Chapter 9 – Discussion Problems Problem 1 – Preparing a Flexible Budget An incomplete flexible budget is given below for Lavage Rapide, a Swiss  company that owns and operates a large automatic carwash facility near  Geneva. Lavage Rapide Flexible Budget For the Month Ended August 31 Cost  Formula  Activity (cars) Overhead Costs (per car) 8,000 9,000 10,000 Variable overhead costs: Cleaning supplies. ........................ ? ? 7,200 ? Electricity . .................................... ? 2,700 ? Maintenance. ................................ ?     ?      1,800       ?    Total variable overhead cost. .......... ? ? ? ? Fixed overhead costs: Operator wages. ........................... ? 9,000 ? Depreciation. ................................ ? 6,000 ? Rent. .............................................   ?      8,000       ?    Total fixed overhead cost. ............... ? ? ? Total overhead cost. ........................ ? ? ? 1
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Solution: Note: With the exception of the number of cars, all amounts below are in  Swiss francs. Lavage Rapide Flexible Budget For the Month Ended August 31 Cost  Formula  Activity (cars) Overhead Costs (per car) 8,000 9,000 10,000 Variable overhead costs: Cleaning supplies. ........................ 0.80 6,400 7,200 8,000 Electricity . .................................... 0.30  2,400 2,700 3,000 Maintenance. ................................ 0.20   1,600       1,800       2,000     Total variable overhead cost. .......... 1.30 10,400 11,700 13,000 Fixed overhead costs: Operator wages. ........................... 9,000 9,000 9,000 Depreciation. ................................ 6,000 6,000 6,000 Rent. .............................................   8,000       8,000       8,000     Total fixed overhead cost. ............... 23,000 23,000 23,000 Total overhead cost. ........................ 33,400 34,700 36,000 2
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Problem 2  Using the data from Problem 1. The company’s manager would like to  prepare a budget for August assuming an activity level of 8,800 cars. Solution: Lavage Rapide Static Budget For the Month Ended August 31 Budgeted number of cars. .......................... 8,800 Budgeted variable overhead costs: Cleaning supplies (@ 0.80 SFr per car). . 7,040 SFr Electricity (@ 0.30 SFr per car). .............. 2,640 Maintenance (@ 0.20 SFr per car). .........   1,760     Total variable overhead cost. ..................... 11,440 Budgeted fixed overhead costs: Operator wages . ..................................... 9,000 Depreciation . .......................................... 6,000 Rent. ........................................................   8,000     Total fixed overhead cost. .......................... 23,000 Total budgeted overhead cost. .................. 34,440 SFr 3
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Problem 3   -    Herbold Corporation uses the following cost formulas in 
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Chapter 9 - Discussion Problems - Chapter9DiscussionProblems

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