Question

Badbug makes Viral Memes which sell for $1,000 each.   The production process is fairly simple and involves tweaking components purchased from various suppliers.  Since each Viral Meme only takes one hour to assemble, there is essentially no work-in-process inventory.  

Badbug has the capacity to make 2,000 Viral Memes per year.

Costs for the Viral Meme components are:

	Primary GIF		$100
	Secondary GIF		20
	JPEGs		10

Each meme should take one hour of direct labor to tweak.  Direct labor wages are $150 per hour.

Other manufacturing costs on a monthly basis are:

	Factory Rent	$1,000
	Factory Insurance	5,000
	Factory Utilities	200
	Factory Miscellaneous	300

Inventory balances are as follows (Badbug uses the FIFO inventory cost flow assumption):

			Units	Dollars
	Primary GIFs	1/1/2020	300	$30,000
		12/31/2020	290		< Budgeted
	Secondary GIFs	1/1/2020	600	$12,000
		12/31/2020	580		< Budgeted
	JPEGs	1/1/2020	900	$9,000
		12/31/2020	870		< Budgeted
	Finished Viral Memes	1/1/2020	300	$107,400
		12/31/2020	290		< Budgeted

During 2020 (the entire year) Badbug expects to sell 1,000 viral memes.  

• What is the budgeted cost of Viral Memes manufactured for 2020?

• What is the budgeted cost of Primary GIFs purchased for 2020?

• What is the budgeted cost of Secondary GIFs purchased for 2020?

• What is the budgeted cost of JPEGs purchased for 2020?

• What is budgeted dollar value of ending Viral Meme inventory?

• What is the budgeted dollar value of ending Primary GIF inventory?

• What is the budgeted dollar value of ending Secondary GIF inventory?

• What is the budgeted dollar value of ending JPEG inventory?

• How much income does Badbug expect to make if they sell 1,000 Viral Memes in 2020 and have budgeted Selling & Administrative expenses of $600,000 (assume no income taxes)?

• How much income does Badbug expect to make if they sell 900 Viral Memes in 2020 (production is adjusted appropriately)?  Remember – individual cost-to-make will change with changes in volume.  That will change ending inventory value.

• How much income does Badbug expect to make if they sell 1,100 Viral Memes in 2020 (production is adjusted appropriately)?

• How much income does Badbug expect to make if they sell 2,000 Viral Memes in 2020 (production is adjusted appropriately)?

Answer 1

	During 2020 (the entire year) Badbug expects to sell 1,000 viral memes.
1	What is the budgeted cost of Viral Memes manufactured for 2020?
		No. of Viral memes to be produced
	Less	Opening stock		300
	Add	Closing stock		290
	Add	Sold		1000
		To be manufactured		990
	As the cost of ingredients to be used in stock and their purchase prices are same
		Cost to manufacture each unit of Viram meme
		Primary GIF		100
		Secondary GIF		20
		JPEG		10
		Total		130
	Multiply	No. of units		990
		manufacturing cost		128700
	Add:	Factory rent		1000
		Insuranve		5000
		Utilities		200
		Miscellaneois		300
		Total manufacturing cost		135200
2	What is the budgeted cost of Primary GIFs purchased for 2020?
3	What is the budgeted cost of Secondary GIFs purchased for 2020?
4	What is the budgeted cost of JPEGs purchased for 2020?
			Primary GIF	Secondary GIF	JPEG
		Closing stock	290	580	870
	Add	Used during the year	1000	1000	1000
	Less	Opening stock	300	600	900
		Purchses (A)	990	980	970
		Purchase cost per unit (B)	100	20	10
		Total Purchses cost (A*B)	99000	19600	9700

5	What is budgeted dollar value of ending Viral Meme inventory?
		As the system is FIFO, in selling 1000 units first 300 were from opening stock.
		Out of manufactured units 990, 700 sold and 290 in stock
		Closing stock(A)	290
		Cost per unit (B)	136.565657	=135200/990
		Total closing stock (A*B)	39604.0404
6, 7, 8	Closng inventory of Pirmary, secondary and JPEG
			Primary GIF	Secondary GIF	JPEG
		Units	290	580	770
		Purchase price per unit	100	20	10
		Totala closing stock	29000	11600	7700	48300

9	Income if Admin exps are 600000
		Total sales	(1000*1000)		1000000
	Less:	Cost of goods sold
		Opening stock Material	(30000+12000+9000)	51000
		Opening stock Finished goods		107400
		Add: Cost of manufr		135200
		Less : Closing stock Material		48300
		Less : Closing stock Finished goods		39604	205696
	Less	Selling & admin exps			600000
		Income			194304