Question

Comprehensive Master Budget:

ABC Costing, Operating & Financial Budgets

Nupes is a famous stick-candy maker in Sydney and produces stick-candies in two sizes, i.e., regular and large. The company sells its products on several platforms such as stores, fairs, schools for fundraisers and in bulk on the internet. 2020 summer is approaching, and Nupes is preparing its budget for December. All Nupes’s stick candies are hand-made, mostly out of sugar, and attached to sticks. Expected sales are based on past experience.

Other information for December 2020 is as follows:

                                                    Input prices

Direct materials: Sugar               $0.45 per kg

Sticks                                          $0.55 each

Direct manufacturing labour      $9 per direct manufacturing labour hour (DMLH)

Input quantities per unit of output

Direct materials:                                                                         Regular              Large

Sugar                                                                                          0.25 kg              0.50 kg

Sticks                                                                                             1                         1

Direct manufacturing labour hour (DMLH) 0.22 hour          0.31 hour

Set-up hours per batch                                                              0.11-hour         0.13 hour

Inventory data for direct materials1

                                                                                                      Sugar                  Sticks

Beginning inventory                                                                    150 kg                 415

Target ending inventory                                                               275 kg                 515

Cost of beginning inventory                                                         $65                     $107

Nupes accounts for direct materials using a FIFO cost flow assumption.

Sales and inventory data for finished goods

                                                                              Regular                         Large

Expected sales in units 3,500                       2,300

Selling price $5.5 $6.5

Target ending inventory in units 350                             190

Beginning inventory in units 235 165

Beginning inventory in dollars $510 $480   

Nupes uses a FIFO cost flow assumption for finished goods inventory.

All the stick-candies are made in batches of 10. Nupes incurs manufacturing overhead cost, and marketing and general administration costs, but customers pay for shipping. Other than manufacturing labour costs, monthly processing costs are very small. Nupes uses activity-based costing (ABC) and has classified all overhead costs for December 2020 as follows

Cost type                                 Denominator activity                                          Rate

Manufacturing:

Set-up                Set-up hours $24 per set-up hour

Processing Direct manufacturing labour hour (DMLH) $2.1 per DMLH

Non-manufacturing:

Marketing & general admin Sales revenue                                                      12%

Required Q1. For December 2020, prepare the following:

(a) Revenue (or sales) budget

(b) Production budget in units

(c) Direct materials usage budget and direct materials purchase budget

(d) Direct manufacturing labour cost budget

(e) Manufacturing overhead cost budgets for processing and set-up activities

(f) The budgeted unit cost of ending finished goods inventory and ending inventories budget

(g) Cost of goods sold budget.

(h) Marketing and general administration cost budget.

Answer 1

Answer :-

a)		Regular	Large
	Budgeted sales (units)	3,500	2,300
	S.P	$ 5.50	$ 6.50
	Budgeted sales ($)	$      19,250	$      14,950
b)	Budgeted sales (units)	3,500	2,300
	Add: Ending inventory	350	190
	Less: Opening inventory	(235)	(165)
	Production required	3,615	2,325
c)	Production required	3,615	2,325
	Raw material Required (per unit)
	Sugar	0.25 Kg	0.50 Kg
	Sticks	1	1
	Raw material Required for production (units)
	Sugar	903.75	1,162.50	2,066.25
	Sticks	3,615	2,325	5,940.00
	Sugar			Total
	Raw material Required for production (kg)	903.75	1,162.50	2,066.25
	Add: Ending inventory			275
	Less: Opening inventory			(150)
	Purchases required (kg)			2,191.25
				$                      0.45
	Purchases required ($)			$              986..06
	Stick			Total
	Raw material Required for production	3,615	2,325	5,940
	Add: Ending inventory			515
	Less: Opening inventory			(415)
	Purchases required (kg)			6,040
				$                      0.55
	Purchases required ($)			$              3,322.00
d)
	Production required	3,615	2,325
	*Direct manufacturing labour hour	0.22 hour	0.31 hour
	*Rate per hour	$ 9	$ 9
	Direct manufacturing labour cost ($)	$         7,158	$         6,487
e)	Production required	3,615	2,325
		12%	12%
	No of batches	434	279
	Set up hours per batch	0.11	0.13
	No of setups	47.74	36.27
	No of setups (round off)	48.00	36.00
	Total no of setups (hours)	84.00
	*rate per set up per hour	$              24
	Set up costs	$   2,016.00
	Production required	3,615	2,325
	Direct manufacturing labour hour (per unit)	0.22 hour	0.31 hour
	No of manufacturing labour hours	795.30	720.75
	Total no of manufacturing labour hours	1,516.05
	*rate per hour	$           2.10
	Manufacturing labour costs	$   3,183.70
f)		Regular	Large
	Raw material usage
	Sugar	0.25 Kg	0.50 Kg
	Stick	1	1
	Raw material rate
	Sugar (per K.G)	0.45
	Stick	0.55
	Direct manufacturing labour hour	0.22 hour	0.31 hour
	Ending inventory of finished goods	350	190
	Raw material cost
	Sugar	$        39.37	$        21.37	350*0.25*0.45	190*0.25*0.45
	Stick	$      192.50	$        104.50	350*1*0.55	190*1*0.55
	Direct manufacturing labour cost	161.70	123.70	350*0.22*2.10	190*0.31*2.10
	Set up costs	$        118.79	$        64.48	2,016/(3,615+2,325)*350	2,016/(3,615+2,325)*190
	Total inventory costs	$      512.36	$      314.05
	no of units	350	190
	Inventory unit costs	$           1.46	$           1.65
		Sugar	Stick
	Ending inventory of raw material	275	515
	*rate	$           0.45	$           0.55
	Ending inventory of raw material	$      123.75	$      283.25
g)	Opening invetory: Materials
	Sugar	$              65
	stick	$            107
	Opening invetory: Finished goods
	Regular	$            510
	Large	$            480
	Add:purchases
	Sugar	$   986.06
	stick	$   3,322.00
	Less: cosing inventory (materials)
	Sugar	$     (123.75)
	stick	$     (283.25)
	Less: cosing inventory (finished goods)
	Regular	$     (512.36)
	Large	$     (314.05)
	Cost of goods sold	$         4,237
h)	Budgeted sales ($)	$      19,250	$      14,950
	rate	12%	12%
	Market and general administration costs	$         2,310	$         1,794