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4. Schedule 4: Direct Manufacturing Labor Budget for January 2018
Labor Category
Cost Driver
Units
DML Hours per
Driver Unit
Total
Hours
Wage
Rate Total
5. Schedule 5: Manufacturing Overhead Budget for January 2018
At Budgeted Level of 13,000
Direct Manufacturing Labor-Hours
Variable manufacturing overhead costs
6. Budgeted manufacturing overhead rate:
$172,000
13,000
= $13.23 per hour
7. Budgeted manufacturing overhead cost per output unit:
$172,000
2,600
= $66 per output unit
8. Schedule 6A: Computation of Unit Costs of Manufacturing Finished Goods in January 2018
Cost per
Unit of
Input a
Inputs b
Total
Direct materials
Wood $34.00 9.00 $306.00
Fiberglass 9.00 10.00 90.00
Direct manufacturing labor 29.00 5.00 145.00
9. Schedule 6B: Ending Inventories Budget, January 31, 2018
Cost per
Units Unit Total
Direct materials
Wood 1,540 $ 34.00 $ 52,360
6-1
10. Schedule 7: Cost of Goods Sold Budget for January 2018
From
Schedule Total
Beginning finished goods inventory
January 1, 2018, $374.80 × 500 Given $ 187,400
Direct materials used 3A $1,024,480
Deduct ending finished goods
11. Budgeted Income Statement for Skulas for January 2018
Operating costs
13. The CEO would want to probe if the revenue budget is sufficiently stretched. Is the
revenue growing faster than the market? Should the company increase marketing and advertising
spending to grow sales? Would increasing the sales force or giving salespersons stronger
incentives result in higher sales?
The CEO would want to ask the production manager if production could be more closely
tailored to demand? Could the efficiency and productivity of direct materials and direct
manufacturing labor be increased? Could direct materials inventory be reduced?
The CEO should set stretch targets that are challenging but achievable because creating
some performance anxiety motivates employees to exert extra effort and attain better
performance. A major rationale for stretch targets is the psychological motivation that comes
from loss aversion—people feel the pain of loss more than the joy of success. Setting challenging
14. Preparing a budget helps Skulas manage costs based on revenues and production needs,
look for opportunities to increase efficiencies, reduce costs, particularly in areas where costs are
6-2
6-43 Cash budgeting, budgeted balance sheet. (Continuation of 6-42) (Appendix)
Refer to the information in Problem 6-42.
Budgeted balances at January 31, 2018 are as follows:
Selected budget information for December 2017 follows:
Customer invoices are payable within 30 days. From past experience, Skulas’s accountant
projects 40% of invoices will be collected in the month invoiced, and 60% will be collected in
the following month.
Accounts payable relates only to the purchase of direct materials. Direct materials are
purchased on credit with 50% of direct materials purchases paid during the month of the
purchase, and 50% paid in the month following purchase.
Fixed manufacturing overhead costs include $64,000 of depreciation costs and fixed
nonmanufacturing overhead costs include $10,000 of depreciation costs. Direct manufacturing
labor and the remaining manufacturing and nonmanufacturing overhead costs are paid monthly.
All property, plant, and equipment acquired during January 2018 were purchased on credit
and did not entail any outflow of cash.
There were no borrowings or repayments with respect to long-term liabilities in January
2018.
On December 15, 2017, Skulas’s board of directors voted to pay a $160,000 dividend to
stockholders on January 31, 2018.
Required:
1. Prepare a cash budget for January 2018. Show supporting schedules for the calculation of
collection of receivables and payments of accounts payable, and for disbursements for fixed
manufacturing and nonmanufacturing overhead.
2. Skulas is interested in maintaining a minimum cash balance of $120,000 at the end of each
month. Will Skulas be in a position to pay the $160,000 dividend on January 31?
3. Why do Skulas’s managers prepare a cash budget in addition to the revenue, expenses, and
operating income budget?
4. Prepare a budgeted balance sheet for January 31, 2018 by calculating the January 31, 2018
balances in (a) cash (b) accounts receivable (c) inventory (d) accounts payable and (e)
plugging in the balance for stockholders’ equity.
6-3
SOLUTION
(30 min.) Cash budgeting, chapter appendix.
1.
Cash Collections from Receivables
From sales in:
Cash Disbursements for Material Purchases
For purchases in:
a6-37, Schedule 3B
Cash Disbursements for Fixed Overhead Costs
b6-42, Schedule 5
c6-42, Budgeted Income Statement
Cash Budget for January 2018
Beginning cash balance $ 124,000
Add receipts: Collection of receivables 1 ,744,000
Total cash available $1 ,868,000
Deduct disbursements:
Material purchases $ 920,800
Direct manufacturing labor 377,000
Variable manufacturing overhead 91,000
Fixed manufacturing overhead 17,000
Variable marketing costs 9,500
Fixed nonmanufacturing costs 25,000
Cash dividends 160 ,000
Total disbursements 1 ,600,300
6-4
Ending cash balance $ 267 ,700
2. Yes. Skulas has a budgeted cash balance of $267,700 on January 31, 2018, after paying the
dividend of $160,000 at the end of January.
3. Skulas’ managers prepare a cash budget in addition to the operating income budget to plan
cash flows to ensure that the company has adequate cash to pay vendors, meet payroll, and pay
operating expenses as these payments come due. Skulas could be very profitable on an accrual
accounting basis, but the pattern of cash receipts from revenues might be delayed and result in
insufficient cash being available to make scheduled payments for its expenses. Skulas’ managers
may then need to initiate a plan to borrow money to finance any shortfall. Building a profitable
operating plan does not guarantee that adequate cash will be available, so Skulas’ managers need
to prepare a cash budget in addition to an operating income budget.
4. Budgeted Balance Sheet for Skulas as of January 31, 2018
Cash $ 267,700
6-44 Comprehensive problem; ABC manufacturing, two products. Hazlett, Inc., operates
at capacity and makes plastic combs and hairbrushes. Although the combs and brushes are a
matching set, they are sold individually and so the sales mix is not 1:1. Hazlett’s management is
planning its annual budget for fiscal year 2018. Here is information for 2018:
6-5
Hazlett accounts for direct materials using a FIFO cost flow.
Hazlett uses a FIFO cost-flow assumption for finished-goods inventory.
Combs are manufactured in batches of 200, and brushes are manufactured in batches of 100.
It takes 20 minutes to set up for a batch of combs and 1 hour to set up for a batch of brushes.
Hazlett uses activity-based costing and has classified all overhead costs as shown in the
following table. Budgeted fixed overhead costs vary with capacity. Hazlett operates at capacity
so budgeted fixed overhead cost per unit equals the budgeted fixed overhead costs divided by the
budgeted quantities of the cost allocation base.
Delivery trucks transport units sold in delivery sizes of 1,000 combs or 1,000 brushes.
Do the following for the year 2018:
Required:
1. Prepare the revenues budget.
2. Use the revenues budget to:
a. Find the budgeted allocation rate for marketing costs.
b. Find the budgeted number of deliveries and allocation rate for distribution costs.
3. Prepare the production budget in units.
4. Use the production budget to:
a. Find the budgeted number of setups and setup-hours and the allocation rate for setup costs.
b. Find the budgeted total machine-hours and the allocation rate for processing costs.
c. Find the budgeted total units produced and the allocation rate for inspection costs.
5. Prepare the direct material usage budget and the direct material purchases budget in both
6-6
units and dollars; round to whole dollars.
6. Use the direct material usage budget to find the budgeted allocation rate for
materials-handling costs.
7. Prepare the direct manufacturing labor cost budget.
8. Prepare the manufacturing overhead cost budget for materials handling, setup, processing,
and inspection costs.
9. Prepare the budgeted unit cost of ending finished-goods inventory and ending inventories
budget.
10. Prepare the cost of goods sold budget.
11. Prepare the nonmanufacturing overhead costs budget for marketing and distribution.
12. Prepare a budgeted income statement (ignore income taxes).
13. How does preparing the budget help Hazlett’s management team better manage the
company?
SOLUTION
(60 min.) Comprehensive problem; ABC manufacturing, two products.
1.
Revenues Budget
For the Year Ending December 31, 2018
Units
Selling
Price Total Revenues
Combs 12,000 $ 9 $108,000
2a.
Total budgeted marketing costs = Budgeted variable marketing costs + Budgeted fixed marketing costs
2b.
Total budgeted distribution costs = Budgeted variable distribn. costs + Budgeted fixed distribn. costs
= $0 + $1,170 = $1,170
3.
6-7
Production Budget (in Units)
For the Year Ending December 31, 2018
Product
Combs Brushes
Budgeted unit sales 12,000 14,000
Add target ending finished goods inventory 1,200 1,400
4a.
Combs Brushes Total
Machine setup overhead
Units to be produced 12,600 14,200
Units per batch ÷200 ÷100
Machine setup
allocation rate
b.
Combs: 12,600 units × 0.025 MH per unit 315 MH
Brushes
1,420 MH
5.
6-8
Direct Material Usage Budget in Quantity and Dollars
For the Year Ending December 31, 2018
Material
Plastic Bristles Total
Physical Units Budget
Direct materials required for
Cost Budget
Available from beginning direct materials inventory
Direct Materials Purchases Budget
For the Year Ending December 31, 2018
Material
Plastic Bristles Total
Physical Units Budget
To be used in production (requirement 5) 176,600 oz. 227,200 bunches
Cost Budget
Plastic: 176,766 oz.
´
$0.30 per oz
$ 53,030
Bristles : 227,652 bunches
´
$0.75 per bunch
_______ $170 ,739
6. Total budgeted matls. handlg. cost = Budgeted variable matls. handlg. cost + Budgeted fixed
matls. handlg. cost
Materials handling
allocation rate
6-9
7.
Direct Manufacturing Labor Costs Budget
For the Year Ending December 31, 2018
Output Units Direct Manufacturing Total Hourly Wage Total
Produced Labor-Hours per Unit Hours Rate
8.
Manufacturing Overhead Cost Budget
For the Year Ending December 31, 2018
Variable Fixed Total
Materials handling $17,235 $22,500 $ 39,735
9.
Unit Costs of Ending Finished Goods Inventory
For the Year Ending December 31, 2018
Combs Brushes
Cost per Input per Input per
Unit of
Input
Unit of
Output Total
Unit of
Output Total
Plastic $0.30 5 oz. $1.50 8 oz $ 2.40
Bristles 0.75 ─ ─ 16 bunches 12.00
a21 setup-hours ÷ 12,600 units = 0.001667 hours per unit; 142 setup hours ÷ 14,200 units = 0.01 hours per unit
6-10
Ending Inventories Budget
December 31, 2018
Quantity Cost per unit Total
Direct Materials
Plastic 1,766 oz $0.30 $ 529.80
Finished goods
Combs 1,200 $4.85 $ 5,820.00
10.
Cost of Goods Sold Budget
For the Year Ending December 31, 2018
Beginning finished goods inventory, Jan. 1
($2,700 + $27,180) $ 29,880
Direct materials used (requirement 5) $223,410
Direct manufacturing labor (requirement 7) 62,460
Manufacturing overhead (requirement 8) 120,330
6-11
