Description
ACCT6111 Fall 2013 Assignment 2
Case 1: Budgeting
Muscat Sandals Company (MSC) makes a very popular
cloth sandal in one style, but in Regular and Deluxe. The Regular sandals have
cloth soles and the Deluxe sandals have cloth covered wooden soles. MSC is
preparing its budget for January 2013, and has estimated sales based on past
experience.
Other information for the month of January follows:
Input Prices
Direct materials
Cloth $3.50
per yard
Wood $5.00
per board foot
Direct manufacturing labor $10 per direct manufacturing labor-hour
Input Quantities per Unit of Output (per pair of
sandals)
Regular Deluxe
Direct materials
Cloth 1.3
yards 1.5 yards
Wood 0 2 board feet
Direct manufacturing labor-hours (DMLH) 5 Hours 7 Hours
Setup-hours per batch 2
Hours 3 Hours
Inventory Information, Direct Materials
Cloth Wood
Beginning inventory 610
yards 800 b.f.
Target ending inventory 386 yards 295 b.f.
Cost of beginning inventory $2,146 $4,040
MSC accounts for direct materials using a FIFO cost
flow assumption.
Sales and Inventory Information, Finished Goods
Regular Deluxe
Expected sales in units (pairs of sandals) 2,000 3,000
Selling price $80
$130
Target ending inventory in units 400
600
Beginning inventory in units 250
650
Beginning inventory in dollars
$15,500 $61,750
MSC uses a FIFO cost flow assumption for finished
goods inventory.
All the sandals are made in batches of 50 pairs of
sandals. MSC incurs manufacturing overhead costs, marketing and general
administration, and shipping costs. Besides materials and labor, manufacturing
costs include setup, processing, and inspection costs. MSC ships 40 pairs of
sandals per shipment. MSC uses activity-based costing and has classified all
overhead costs for the month of January as shown in the following chart:
Cost type Denominator
Activity Rate
Manufacturing:
Setup Setup-hours $12
per setup-hour
Processing
Direct
manufacturing labor-hours $1.20
per DMLH
Inspection
Number
of pairs of sandals $0.90
per pair
Nonmanufacturing:
Marketing and general administration Sales revenue 8%
Shipping Number
of shipments $10
per shipment
Required:
1. Prepare
each of the following for January:
a. Revenues
budget
b. Production
budget in units
c. Direct
material usage budget and direct material purchases budget in both units and
dollars; round to dollars
d. Direct
manufacturing labor cost budget
e.
Manufacturing overhead cost budgets for processing and setup activities
f. Budgeted
unit cost of ending finished goods inventory and ending inventories budget
g. Cost of
goods sold budget
h. Marketing
and general administration costs budget
2. MSC’s balance
sheet for December 31 follows. Use it and the following information to prepare
a cash budget for MSC for January. Round to dollars.
•
All sales are on account; 60% are collected in the month of the sale,
38% are collected the following month, and 2% are never collected and written
off as bad debts.
•
All purchases of materials are on account. MSC pays for 80% of purchases
in the month of purchase and 20% in the following month.
•
All other costs are paid in the month incurred, including the declaration
and payment of a $10,000 cash dividend in January.
•
MSC is making monthly interest payments of 0.5% (6% per year) on a
$100,000 long term loan.
•
MSC plans to pay the $7,200 of taxes owed as of December 31 in the month
of January. Income tax expense for January is zero.
•
30% of processing and setup costs, and 10% of marketing and general
administration costs are depreciation.
Balance Sheet as of December 31
|
Assets |
||
|
Cash |
$ |
|
|
Accounts receivable |
$216,000 |
|
|
Less: Allowance for bad debts |
10,800 |
205,200 |
|
Inventories |
||
|
Direct materials |
6,186 |
|
|
Finished goods |
77,250 |
|
|
Fixed assets |
$580,000 |
|
|
Less: Accumulated depreciation |
90,890 |
489,110 |
|
Total assets |
$784,036 |
|
|
Liabilities and Equity |
||
|
Accounts payable |
$ 10,400 |
|
|
Taxes payable |
7,200 |
|
|
Interest payable |
500 |
|
|
Long-term debt |
100,000 |
|
|
Common stock |
200,000 |
|
|
Retained earnings |
465,936 |
|
|
Total liabilities and equity |
$784,036 |
Prepare a
budgeted income statement for January and a budgeted balance sheet for MSC as
of January 31.
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