Stivrins Company Is in the Process of Negotiating a New

Essay

Stivrins Company is in the process of negotiating a new union contract. If the new contract goes into effect, there could be a significant decrease in the company's production output. More vacation time and shorter shifts will cause several production lines to be inoperable for a short period of time. The normal capacity of the company is set at 93,000 units. Nicklin, the manager, put together the following chart that incorporates the new contract. Budgeted monthly fixed-MOH costs are expected to be $250,000 with budgeted variable manufacturing costs of $6 per unit. The selling price per unit would be $14, and the company plans to sell 94,000 units per month. Instructions
a.Calculate the denominator level in units for the theoretical and practical capacity levels for one month.
b.Calculate the budgeted fixed MOH rate of each of the three levels. (Round to the nearest cent.)
c.If the company's actual production was 97,000 units for the current month, calculate the fixed-MOH volume variance for each denominator level. Be sure to notate the sign of the variance.
d.Assuming there are no price or efficiency variances, and the company's policy is to write off any variances directly to COGS, prepare a partial income statement through gross margin for each denominator level.