Question
In: Accounting
XYZ company make shoes of two kinds that are athletic shoes and climbing shoes. The athletic...
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?
Solutions
Expert Solution
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 |
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