Butler Products Case Study

In: Business and Management

Submitted By canupe
Words 1136
Pages 5
Butler Products
Case Study for DBA 8230

May 8, 2012

Background
The Butler family of products produces a wide variety of items. One of the manufacturing companies makes products in three finishing departments (A, B, and C), which have identical assembly operations but package the products differently for different lines of business.
Each finishing line packages units as either single or multiple units per package. For allocating overhead, volume is defined in terms machine hours. Each department can package 1,140 single units per hour.
Department A has the oldest equipment, which is in the last year of its depreciable life. Department N’s equipment is about half depreciated. Department C’s equipment is in the second year of its life.
The budget prepared for each department in 2010 included the following costs, volumes, and overhead rates (given in millions of dollars):

| A | B | C | Expected number of units | 73M | 73M | 55M | Fixed overhead | | | | General expense | $1.5M | $2.0M | $1.25M | Rent | $1.5M | $2.0M | $1.75M | Depreciation | $0.5M | $2.0M | $5.0M | Total fixed overhead | $3.5M | $6.0M | $8.0M | Variable overhead | $150/machine hour | $131/machine hour | $150/machine hour | Machine rate | 1,140 units/hour | 1,140 units/hour | 1,140 units/hour | Direct materials | $0.50/unit | $.052/unit | $.55/unit | Direct labor | $.015/unit | $.015/unit | $0.135/unit |

The general expense portion of the overhead is set by each department at the beginning of the year for training, capital items under $2,500, and other department needs. The rent charged to each department is determined by the age and the structure of the building in which the department operates. In general, machines that are shut down because of volume decreases are not removed, so rent charges do not decrease with volume.
The company…...

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