Tina's Fine Juices is a bottler of orange juice located in theNortheast. The company produces bottled orange juice from fruitconcentrate purchased from suppliers in Florida, Arizona, andCalifornia. The only ingredients in the juice are water andconcentrate. The juice is blended, pasteurized, and bottled forsale in 12-ounce plastic bottles. The process is heavily automatedand is centered on five machines that control the mixing andbottling of the juice. The amount of labor required is very smallper bottle of juice. The average worker can process 10 bottles ofjuice per minute, or 600 bottles per hour. The juice is sold by anumber of grocery stores under their store brand name and insmaller restaurants, delis, and bagel shops under the name ofTina's Fine Juices. Tina's has been in business for several yearsand uses a sophisticated sales forecasting model based on previoussales, expected changes in demand, and economic factors affectingthe industry. Sales of juice are highly seasonal, peaking in thefirst quarter of the calendar year.
Forecasted sales for the last two months of 2012 and all of 2013are as follows:
2012 Bottles
November 375,000
December 370,000
2013 Bottles
January 350,000
February 425,000
March 400,000
April 395,000
May 375,000
June 350,000
July 375,000
August 385,000
September 395,000
October 405,000
November 400,000
December 365,000
Following is some other information that relates to Tina's FineJuices:
Juice is sold for $1.05 per 12-ounce bottle, in cartons thathold 50 bottles each.
Tina's Fine Juices tries to maintain at least 10 percent of thenext month's estimated sales in inventory at the end of eachmonth.
The company needs to prepare two purchases budgets: one for theconcentrate used in its orange juice and one for the bottles thatare purchased from an outside supplier. Tina's has determined thatit takes 1 gallon of orange concentrate for every 32 bottles offinished product. Each gallon of concentrate costs $4.80. Tina'salso requires 20 percent of next month's direct material needs tobe on hand at the end of the budget period. Bottles can bepurchased from an outside supplier for $0.10 each.
Factory workers are paid an average of $15 per hour, includingfringe benefits and payroll taxes. If the production scheduledoesn't allow for full utilization of the workers and machines, oneor more workers are temporarily moved to another department.
Most of the production process is automated, the juice is mixedby machine, and machines do the bottling and packaging. Overheadcosts are incurred almost entirely in the mixing and bottlingprocess. Consequently, Tina's has chosen to use a plantwide costdriver (machine hours) to apply manufacturing overhead toproducts.
Variable overhead costs will be in direct proportion to thenumber of bottles of juice produced, but fixed overhead costs willremain constant, regardless of production. For budgeting purposes,Tina's separates variable overhead from fixed overhead andcalculates a predetermined overhead rate for variable manufacturingoverhead costs.
Variable overhead is estimated to be $438,000 for the year, andthe production machines will run approximately 8,000 hours at theprojected production volume for the year (4,775,000 bottles).Therefore, Tina's predetermined rate for variable overhead is$54.75 per machine hour ($438,000
Tina's Fine Juices is a bottler of orange juice located in theNortheast. The company produces bottled orange juice from fruitconcentrate purchased from suppliers in Florida, Arizona, andCalifornia. The only ingredients in the juice are water andconcentrate. The juice is blended, pasteurized, and bottled forsale in 12-ounce plastic bottles. The process is heavily automatedand is centered on five machines that control the mixing andbottling of the juice. The amount of labor required is very smallper bottle of juice. The average worker can process 10 bottles ofjuice per minute, or 600 bottles per hour. The juice is sold by anumber of grocery stores under their store brand name and insmaller restaurants, delis, and bagel shops under the name ofTina's Fine Juices. Tina's has been in business for several yearsand uses a sophisticated sales forecasting model based on previoussales, expected changes in demand, and economic factors affectingthe industry. Sales of juice are highly seasonal, peaking in thefirst quarter of the calendar year.
Forecasted sales for the last two months of 2012 and all of 2013are as follows:
2012 Bottles
November 375,000
December 370,000
2013 Bottles
January 350,000
February 425,000
March 400,000
April 395,000
May 375,000
June 350,000
July 375,000
August 385,000
September 395,000
October 405,000
November 400,000
December 365,000
Following is some other information that relates to Tina's FineJuices:
Juice is sold for $1.05 per 12-ounce bottle, in cartons thathold 50 bottles each.
Tina's Fine Juices tries to maintain at least 10 percent of thenext month's estimated sales in inventory at the end of eachmonth.
The company needs to prepare two purchases budgets: one for theconcentrate used in its orange juice and one for the bottles thatare purchased from an outside supplier. Tina's has determined thatit takes 1 gallon of orange concentrate for every 32 bottles offinished product. Each gallon of concentrate costs $4.80. Tina'salso requires 20 percent of next month's direct material needs tobe on hand at the end of the budget period. Bottles can bepurchased from an outside supplier for $0.10 each.
Factory workers are paid an average of $15 per hour, includingfringe benefits and payroll taxes. If the production scheduledoesn't allow for full utilization of the workers and machines, oneor more workers are temporarily moved to another department.
Most of the production process is automated, the juice is mixedby machine, and machines do the bottling and packaging. Overheadcosts are incurred almost entirely in the mixing and bottlingprocess. Consequently, Tina's has chosen to use a plantwide costdriver (machine hours) to apply manufacturing overhead toproducts.
Variable overhead costs will be in direct proportion to thenumber of bottles of juice produced, but fixed overhead costs willremain constant, regardless of production. For budgeting purposes,Tina's separates variable overhead from fixed overhead andcalculates a predetermined overhead rate for variable manufacturingoverhead costs.
Variable overhead is estimated to be $438,000 for the year, andthe production machines will run approximately 8,000 hours at theprojected production volume for the year (4,775,000 bottles).Therefore, Tina's predetermined rate for variable overhead is$54.75 per machine hour ($438,000
