Question

Q.2 (Max Marks:90)
Bombera Ltd operates at capacity and makes glass-topped dining tables and wooden chairs, which are then typically sold as sets of four chairs with one table. However, some customers purchase replacement or extra chairs, and others buy some chairs or a table only, so the sales mix is not exactly 4:1. Bombera Ltd is planning its annual budget for the financial year 2018. Information for 2018 follows:

Input prices   Direct materials Wood $5.30 per board metre Glass $11.5 per sheet Direct manufacturing labour $14 per direct manufacturing labour-hour

Input quantities per unit of output


Chairs Tables    Direct materials   Wood 1.2 board metres 1.7 board metres Glass — 2 sheets Direct manufacturing labour 3 hours 6 hours Machine-hours (MH) 2 MH 5 MH

Inventory information, direct materials


Wood Glass    Beginning inventory 27 200 board metres 8 700 sheets Target ending inventory 29 360 board metres 9 500 sheets   

ACT501 Semester 2, 2018 Page 4

Sales and inventory information, finished goods

Chairs Tables    Expected sales in units 172 000 45 000 Selling price $70 $900 Target ending inventory in units 8 400 2 050 Beginning inventory in units 7 500 2 150    Chairs are manufactured in batches of 500 and tables are manufactured in batches of 50. It takes three hours to set up for a batch of chairs and two hours to set up for a batch of tables. Bombera Ltd uses activity-based costing and has classified all overhead costs as shown in the table below:

Cost type
Budgeted variable
Budgeted fixed Cost driver/allocation base Manufacturing:    Materials handling $342 840 $600 000 Number of board metres used Set-up 97 000 300 740 Set-up hours Processing 789 250 5 900 000 Machine-hours Nonmanufacturing:    Marketing 2 011 200 4 500 000 Sales revenue Distribution 54 000 380 000 Number of deliveries

Delivery trucks transport units sold in delivery sizes of 500 chairs or 500 tables.
Required For the year 2018:


5. Prepare the direct materials usage budget and the direct materials purchases budget. 6. Use the direct materials usage budget to find the budgeted allocation rate for materials-handling costs. (2.5 marks) 7. Prepare the direct manufacturing labour cost budget. (1.5 marks) 8. Prepare the manufacturing overhead cost budget for materials handling, set-up and processing. (1.5 marks) 9. Prepare the budgeted unit cost of finished good (16.5 marks) and ending inventories budget. (4.5 marks) 10. Prepare the cost of goods sold budget. 11. Prepare the non-manufacturing overhead costs budget for marketing and distribution. (1 mark) 12. Prepare a budgeted income statement (ignore income taxes). 13. Compare the budgeted unit cost of a chair to its budgeted selling price. Why might Bombera Ltd continue to sell the chairs for only $70?

Answer 1

5)
S No	Particulars	Chairs (Units)	Tables (Units)
a)	Estimated sales	172,000	45,000
b)	Beginning Inventory	7,500	2,150
c)	Target Ending Inventory	8,400	2,050
d)	Production (a+c-b)	172,900	44,900
	Material Requirements	Input quantities per unit of output
		UOM	Chairs	Table
	Direct Material
e)	Wood	board metres	1.20	1.70
f)	Glass	sheets		2
	Total wood Requirement for chair (board metres)		207,480	( d*e)
	Total wood Requirement for Table (board metres)		76,330	(d*e)
	Total Glass Requirement (sheet)		89,800	(d*f)
Direct Material Purchase Budget
			Wood (board metres)	Glass (sheets)
g)	Total Requirement		283,810	89,800
h)	Opening Inventory		27200	8700
i)	Target Closing Inventory		29360	9500
j)	Purchase (g+i-h)		285,970	90,600
	Price		$5.3	$11.50
	Total Purchase Cost ($)		1,515,641	1,041,900
6)	Budgeted Allocation Rate for Material Handling
			Budgeted Variable	Budgeted Fixed	Cost driver/allocation base
	Material Handling $		342,840	600,000	Number of board metres used
	Estimated number of board metres to be used		283,810
	Per unit Rate		1.21
	Chair   Table number of board metres to be used per unit                 1.20               1.70 Variable Cost per unit of Material Handling Costs'                 1.45               2.05 Allocation of Fixed Overhead Total Number of Board meters       207,480.00       76,330.00 Allocated Fixed Material Handling Costs       438,631.48      161,368.52
3)	Direct Manufacturing Labour cost
			Chairs	Table	Total
k)	Direct manufacturing hours required per unit		3	6
l)	Budgeted Production (d)		172,900	44,900	217,800
m)	No of Direct Manufacturing hours required (k*l)		518,700	269,400	788,100
n)	Price per direct manufacturing labour hours		$14	$14	$14
o)	Budgeted Manufacturing Labour Hour Cost ($) (m*n)		7,261,800	3,771,600	11,033,400
7)	Direct Manufacturing Overhead Budget
			Variable				Fixed Cost
			Table/Chair	Chair	Table		Table/Chair	Chair	Table
	Material Handling		342,840			Material Handling	600,000
	Number of board metres per unit		283,810	1.20	1.70	Number of board metres	283810	207,480	76,330
	Cost per unit board metre (u)		1.21	1.45	2.46	Allocation of Fixed Material Handling		438,631	161,369
				(1.21*1.20)	(1.21*1.70)
	Set up Cost		97,000				300,740
	Set Up hours per unit ( r)		2,833	0.006	0.04		2,833	1,037	1,796
	Cost per unit Setup Hours (v)		34	0.21	0.01	Allocation of Fixed Setup Costs		110,126.25	190,656
				(34*.006)	(34*.04)
	Processing Cost		789,250				5,900,000
	Machine Hours (t)		570,300	2	5		570,300	345,800	224,500
	Cost per unit Machine Hours (w)		1.38	2.77	6.92	Allocation of Fixed Machine Hours		3,577,450.46	2,322,550
				(2*1.38)	(5*1.38)
	Total Manufacturing Overheads ($)		1,229,090					600,000	1,829,090
	Manufacturing cost per unit of production
	Calculation of Set Up Hours
			Chairs	Table	Total
d)	Budgeted Production		172,900	44,900	217,800
p)	Batches		500	50
q)	Set up hours per batch		3	2
r)	Total Number of Setup hours (d/p*q)		1,037	1,796	2,833
	Calculation of Machine Hours
			Chairs	Table	Total
d)	Budgeted Production		172,900	44,900	217,800
s)	Machine hours required per unit		2	5
t)	Total Machine hours required (d*s)		345,800	224,500	570,300
8)	Budgeted Unit Cost of Finished goods and ending Inventory Budget
		Chair	Table
	Budgeted Production (Units) (Chair+Table) (d)	172,900	44,900
	Direct Material Consumption
	Wood	5.3	5.3
	Glass		11.5
	Direct Manufacturing Labour Cost	14	14
	Direct Variable Material Handling	1.45	2.46
	Direct Fixed Material Handling (u/d)	2.54	3.59
	Direct Variable Setup Costs	0.21	0.01
	Direct Fixed Setup Costs (v/d)	0.64	4.25
	Direct Variable Processing Costs	2.77	6.92
	Direct Fixed Processing Costs (w/d)	20.69	51.73
	Total Per unit Cost of Production	47.59	99.76
	Inventory in Hand	8,400	44,900
	Total Value of Closing Inventory	399,736	4,479,201