Question

XYZ company make shoes of two kinds that are athletic shoes and climbing shoes. The athletic shoes made of fabric sole and the climbing shoes have fabric–covered leather sole. XYZ preparing its budget for Mar 2020 and has estimated sales based on past experience. The information is presented below:

Input prices
Direct materials:
Fabric	$5.25 per yard
Leather	$7.5 per square feet
Direct manufacturing labor	$16 per direct manufacturing labor hours

Input quantities per unit of output (per pair of shoe)	athletic	climbing
Direct materials:
Fabric	1.2 yard	1.4 yard
Leather	0	2 s.f.
Direct manufacturing labor	5 hours	7 hours
Setup-hours per batch	3 hours	4 hours

Inventory information (Direct material)	Fabric	Leather
Beginning inventory	620 yards	800 s.f
Target ending inventory	380 yards	295 s.f
Cost of beginning inventory	$3,219	$6,060

XYZ account for direct material using FIFO cost flow assumption.

Sales and inventory information, finished goods	athletic	climbing
Expected sales in units (pair of shoe)	2,000	3,000
Selling price	$120	$195
Target ending inventory in units	400	600
Beginning inventory in units	250	650
Beginning inventory in dollar	$23,250	$92,000

XYZ account for direct material using FIFO cost flow assumption.

All the shoes are made in batch of 50 pairs of shoe. XYZ incurs manufacturing overhead costs of marketing and general administration, and shipping cots. Besides materials and labor, manufacturing cost processing and inspection costs. XYZ ships 40 pair of shoe per shipment. XYZ uses activity based costing and has classified all overhead costs for the month of Mar as shown in the following table:

Cost type	Activity	Rates
Manufacturing:
Setup	Setup-hours	$18 per set-up per batch
Processing	Director labor hours	$1.8 per direct labor hour
Inspection	Number of shoes	$1.35 per pair per batch
Non-manufacturing:
Marketing and general administration	Sales revenue	8%
Shipping	Number of shipments	$15 per shipment

Prepare the master budget that includes revenue, contribution margin, operating income and all type of costs?

Answer 1

For preparing the budget, each information provided has to be collated as given below. After collating complete information, the same has to be plotted in the budget

1. Estimating Sales and related costs
Particulars	Atheltic Shoes	Climbing Shoes	Total
Shoes units for sale	2,000	3,000
Selling Price	120	195
Total Sales units x price	240,000	585,000	825,000
Marketing cost (8% of total sale value)	19,200	46,800	66,000
Number of shipments - 40 shoes per shipment	50	75
Rate per shipment	15	15
Shipment costs	750	1125	1,875

2. Estimating production requirements
Particulars	Atheltic Shoes	Climbing Shoes
Opening inventory	250	650
Closing inventory targeted	400	600
Movement (Closing- Opening)	150	(50)
Sale units estimated	2,000	3,000
Production required (Sales+ movement)	2,150	2,950

3. Estimating Direct Material Costs and Inventory
Particulars	Fabric	Leather	Total
Opening inventory - units	620	800
Closing inventory in unit	380	295
Movement (closing - opening)	(240)	(505)
Shoes sales estimated	2000 Atheltic + 3000 Climbing	3000 Climbing
Requirement per shoe	1.2 yard for Atheltic and 1.4 for Climbing	2 sf feet per shoe
Total qty required (shoes x requirement per shoe)	6,600	6,000
Net to be purchased after adjusting movement in stock	6,360	5,495
Cost per unit	5.25	7.5
Total Direct Material Cost	33,390	41,213	74,603
Clsoing stock value - Target closing stock x unit cost	1,995	2,213	4,208

4. Estimating Direct Labour Costs
Particulars	Atheltic Shoes	Climbing Shoes	Total
Labour hours required per shoe	5	7
Production estimated (2. Estimating production requirements)	2,150	2,950
Total hours required (labour hours x production)	10,750	20,650
Cost per hour as provided	16	16
Total Cost	1,72,000	3,30,400	5,02,400
Cost per shoe (total cost / production)	80	112

5. Estimating Set Up Costs
Particulars	Atheltic Shoes	Climbing Shoes	Total
Set up hours per batch	3	4
Production estimated (2. Estimating production requirements)	2,150	2,950
Batches - production/ 50	43	59
Set up per batch - set up hours x number of batches	129	236
Cost per set up	18	18
Set Up Costs	2,322	4,248	6,570
Cost per shoe	1.08	1.44

6. Estimating Processing Costs
Particulars	Atheltic Shoes	Climbing Shoes	Total
Direct Labour hours required for production (4. Estimating Direct Labour Costs)	10,750	20,650
Rate per hour	1.8	1.8
Processing Cost	19,350	37,170	56,520
Cost per shoe	9.00	12.60

7. Estimating Inspection Costs
Particulars	Atheltic Shoes	Climbing Shoes	Total
Production estimated (2. Estimating production requirements)	2,150	2,950
Rate per shoe	1.35	1.35
Inspection Cost	2,903	3,983	6,885

8. Deriving Closing Stock value for shoes - refer rate per shoe in each of the cost section
Particulars	Atheltic Shoes	Climbing Shoes	Total
Direct labour per shoes	80.00	112.00
Fabric (qty required 1.2 for atheltic and 1.4 for climbing x rate $5.25 ) per shoe	6.30	7.35
Leather (qty required 2 sft x rate per qty $7.5) per shoe	-	15.00
Set up Cost per shoe	1.08	1.44
Processing Cost per shoe	9.00	12.60
Inpection Cost per shoe	1.35	1.35
Total Cost per shoe	97.73	149.74	ekkarill92 Next > < Previous Related Solutions You work for Mike, a global company that specializes in manufacturing and selling athletic shoes for... You work for Mike, a global company that specializes in manufacturing and selling athletic shoes for both competition athletes and casual users. You are called into your supervisor’s office where he tells you that you have been assigned to be the leader of a virtual team. The team has been tasked with assessing the feasibility of the company manufacturing and marketing an inexpensive athletic shoe to be sold in Brazil. You will be responsible for getting the team up and... You work for Mike, a global company that specializes in manufacturing and selling athletic shoes for... You work for Mike, a global company that specializes in manufacturing and selling athletic shoes for both competition athletes and casual users. 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