Answer the following questions using the information below:
Crynton Company makes a household appliance with model number L800. The goal for 2015 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 L800 units that can be produced. The industry market size for appliances increased 5% from 2014 to 2015. The following additional data are available for 2014 and 2015:
$\begin{array}{lrr}&2014&2015\
\text { Units of L800 produced and sold } & 30,000 & 31,500 \
\text { Selling price } & \$ 300 & \$ 285 \
\text { Direct materials (square feet) } & 90,000 & 87,000 \
\text { Direct material costs per square foot } & \$ 30 & \$ 33\\text { Manufacturing capacity for L800 (units) } & 37,500 & 36,000 \
\text { Total conversion costs } & \$ 750,000 & \$ 720,000 \
\text { Conversion costs per unit of capacity } & \$ 60 & \$ 60
\end{array}$
-What is the cost effect of the growth component for direct materials?

Question

Answer the following questions using the information below:
Crynton Company makes a household appliance with model number L800. The goal for 2015 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 L800 units that can be produced. The industry market size for appliances increased 5% from 2014 to 2015. The following additional data are available for 2014 and 2015:
 $\begin{array}{lrr}&2014&2015\
\text { Units of L800 produced and sold } & 30,000 & 31,500 \
\text { Selling price } & \$ 300 & \$ 285 \
\text { Direct materials (square feet) } & 90,000 & 87,000 \
\text { Direct material costs per square foot } & \$ 30 & \$ 33\\text { Manufacturing capacity for L800 (units) } & 37,500 & 36,000 \
\text { Total conversion costs } & \$ 750,000 & \$ 720,000 \
\text { Conversion costs per unit of capacity } & \$ 60 & \$ 60
\end{array}$
-What is the cost effect of the growth component for direct materials?

Quizplus · Accepted Answer

The cost effect of the growth component for direct materials is the difference between the actual direct materials cost and the budgeted direct materials cost. The budgeted direct materials cost is the cost that would have been incurred if the company had produced and sold the same number of units in 2015 as it did in 2014. The actual direct materials cost is the cost that was actually incurred in 2015.The budgeted direct materials cost is calculated as follows:Budgeted direct materials cost = Budgeted direct materials usage per unit * Actual units produced and soldBudgeted direct materials usage per unit = Actual direct materials usage per unit in 2014Actual direct materials usage per unit in 2014 = 90,000 square feet / 30,000 units = 3 square feet per unitBudgeted direct materials usage per unit = 3 square feet per unitActual units produced and sold = 31,500 unitsBudgeted direct materials cost = 3 square feet per unit * 31,500 units = 94,500 square feetThe actual direct materials cost is calculated as follows:Actual direct materials cost = Actual direct materials usage * Actual direct material costs per square footActual direct materials usage = 87,000 square feetActual direct material costs per square foot = $33Actual direct materials cost = 87,000 square feet * $33 = $2,871,000The cost effect of the growth component for direct materials is calculated as follows:Cost effect of the growth component for direct materials = Actual direct materials cost - Budgeted direct materials costCost effect of the growth component for direct materials = $2,871,000 - $2,730,000 = $141,000The cost effect of the growth component for direct materials is $141,000 unfavorable.

Answer the Following Questions Using the Information Below: Crynton Company

Answer the Following Questions Using the Information Below:
Crynton Company